Tap into dividends with these generous ETFs.
Across 2022, many investors have been reminded of the value of a “risk off” portfolio. Sure, you may not have as much potential for big short-term returns if you stick with sleepy consumer staples, telecom or utility stocks. But what you will get is stability in a volatile market, and a steady flow of dividends as you buy and hold these investments. For those looking to build out their income-oriented holdings as we enter a new year, the following dividend ETFs all offer yields of 3% or better. And while some of them do carry elevated risk, the majority rely on rock-solid stocks with consistent paydays to generate their returns. That approach may not be as dynamic as biotech stocks or small-cap software firms, but may provide some much-needed peace of mind.
Schwab US Dividend Equity ETF (ticker: SCHD)
One of the most popular dividend ETFs is this Schwab fund that boasts about $44 billion in assets, making it one of 30 largest funds of any strategy on Wall Street. It’s also among one of the cheapest options for income investors, with just 0.06% in annual expenses, or $6 on every $10,000 invested. It’s a simple way to play dividend stocks in one diversified ETF, with just 100 total positions that include big names like pharmaceutical company Merck & Co. Inc. (MRK) and enterprise tech giant Cisco Systems Inc. (CSCO).
Dividend yield: 3.1%
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
Even more selective is SPYD, which takes the S&P 500 index and then hand-picks the 80 companies with the highest yields in the index. That means you drop stingy names like trillion-dollar tech company Microsoft Corp. (MSFT), which pays only 1.1% yield at present, and instead rely on blue chips like biotech firm Gilead Sciences Inc. (GILD) that yields north of 3.3% at present. There’s a bit more risk when an ETF narrows its holdings like this, but the total portfolio pays almost 3x the broader S&P 500 index as a result of this selectivity.
Dividend yield: 3.8%
Global X SuperDividend ETF (SDIV)
This is one of the smaller high-dividend ETFs out there as measured by assets, with only about $740 million under management. But, as the name implies, this is a supercharged dividend ETF that offers one of the best paydays of any high-yield ETF out there. Specifically, this Global X fund prioritizes yield by chasing dividends across all sectors, company sizes and geographies. That means some smaller or less-known international names like British tobacco company Imperial Brands PLC (IMBBY) or Hong Kong’s Midea Real Estate Holding Ltd. (3990). Though diversified across roughly 115 companies, there is undeniably risk in off-the-beaten-path names like these. But with a double-digit yield, some investors may consider the risk worth the potential reward.
Dividend yield: 14.3%
iShares International Select Dividend ETF (IDV)
Another international dividend name, IDV instead takes a less aggressive focus by prioritizing “developed” markets such as Europe and Japan. As a result, its list includes more established global dividend stocks like $100 billion megaminer Rio Tinto Group PLC (RIO) and $150 billion French oil giant TotalEnergies SE (TTE). As a result, IDV offers a tremendous dividend that is roughly 5x that of the S&P 500 at present. It’s also worth noting that this is an “ex-U.S.” fund that intentionally avoids domestic stocks, so you can layer this over U.S. dividend stock investments for some easy diversification without duplicating any other positions.
Dividend yield: 7.1%
Real Estate Select Sector SPDR (XLRE)
Looking beyond geography, focusing your investment on specific sectors can also unlock bigger paydays for investors looking at dividend ETFs. Even if it’s not the biggest real estate ETF out there, this $5 billion SPDR fund is definitely large enough to be established and offers one of the lowest fee structures in its category. Just be aware it does come with a higher risk profile, both because real estate hasn’t exactly been a great corner of the stock market lately and because it has a very short list of just 30 or so total holdings at present. These companies are all leaders, including warehouse operator Prologis Inc. (PLD) and telecom property firm American Tower Corp. (AMT) as top holdings. But keep in mind that XLRE is down about 26% on the year, which puts investors deep in the hole in the short-term despite the generous yield.
Dividend yield: 3.5%
Alerian MLP ETF (AMLP)
On the flip side of sector investing is energy, which has been on a tear in 2022 thanks to inflationary pressures driving up the price of oil and natural gas. There are several ways to tap into this trend, but one dividend ETF worth a look is this Alerian ETF that has delivered 17% gains on the year even as other investments have fallen apart. This ETF offers a way to play the energy sector with a focus on “midstream” operations via master limited partnerships, or MLPs. The fund contains about 20 MLPs, which are a special class of energy infrastructure company structured as partnerships for tax efficiency — and a mandate for big dividends. Top holdings right now include Energy Transfer LP (ET) and Plains All American Pipeline LP (PAA).
Dividend yield: 7.3%
First Trust Preferred Securities & Income ETF (FPE)
Looking beyond conventional dividend stocks, this FirstTrust ETF provides access to a special class of “preferred” stock that isn’t easily accessible for most investors. A hybrid between stocks and bonds, preferred stock offers regular and generous income akin to debt securities with a fixed yield, but also a bit more risk and exposure to market trends as stocks do. Commonly, preferred stock is deployed by businesses looking to raise cash for big capital expense projects or investment funds, so roughly two-thirds of this ETF is invested in financials like banks and insurance companies including Wells Fargo & Co. (WFC). After that, you’ll find big energy firms like natural gas giant Enbridge Inc. (ENB) or utilities like Sempra Energy (SRE) that are upgrading their infrastructure. Leaving out other sectors of the market does make for a different risk profile but the big yield and more stable nature of preferred stock may make this fund worth a look all the same.
Dividend yield: 5.5%
7 of the best dividend ETFs:
— Schwab US Dividend Equity ETF (SCHD)
— SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
— Global X SuperDividend ETF (SDIV)
— iShares International Select Dividend ETF (IDV)
— Real Estate Select Sector SPDR (XLRE)
— Alerian MLP ETF (AMLP)
— First Trust Preferred Securities & Income ETF (FPE)
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Update 12/09/22: This story was previously published at an earlier date and has been updated with new information.