Investing in dividend stocks can be a good strategy if you want steady passive income and the relative safety of owning well-established, consistently profitable companies. But which dividend ETF is the best choice for your portfolio?
Two popular dividend stock ETFs are the ProShares S&P 500 Dividend Aristocrats® ETF (NOBL +0.11%) and the Vanguard International High Dividend Yield ETF (VYMI +0.44%). (The term Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC.)
These funds use different investing approaches. NOBL holds a relatively small portfolio of 69 stocks, focusing on S&P 500 Dividend Aristocrats®, which are companies that have paid increasingly higher dividends for the past 25 years.
VYMI has more international flavor and holds more stocks -- a total of 1,532. This international stock ETF focuses on global companies that are expected to deliver higher-than-average dividend yields.
Let's look at how investors can choose between NOBL vs. VYMI, and see which stock ETF could be the better buy for most people's portfolios.
Image source: Getty Images.
NOBL: dividend stock ETF with "aristocratic" pedigree
If you're worried about the high valuations of tech stocks and want to put your portfolio into some different sectors of the U.S. stock market, the ProShares S&P 500 Dividend Aristocrats ETF can offer you some dividend-focused diversification. This fund pays a dividend yield of 2.59%, and invests mostly in non-tech sectors within the U.S., like Consumer Staples (23.3% of the fund), Industrials (21.3%), Financials (12.4%), Materials (12.1%), and Health Care (10.03%).
NYSEMKT: NOBL
Key Data Points
In the past 12 years since this fund was created in October 2013, it has delivered average annual returns (by net asset value) of 10.4%. It has underperformed the S&P 500 index and VYMI for the past five years -- during that time, NOBL shares have gained about 22%, VYMI shares are up some 49%, and the S&P 500 index has gained about 70%.
NOBL charges an expense ratio of 0.35%, which is not super pricey but is higher than a typical low-cost index fund. The fund has a price-to-earnings ratio of 21.4, which is a bit lower than the S&P 500 index P/E ratio of 29.9.
VYMI: 10 years of annual returns averaging 10.9%
The Vanguard International High Dividend Yield ETF offers you a wider range of companies and countries. And it has a stronger track record of performance than NOBL while charging lower fees. For the past 10 years since its inception, VYMI has delivered average annual returns(by net asset value) of 10.9%, and it charges a low expense ratio of only 0.07%.
This international stock ETF lets you own 1,532 stocks from companies mostly in the regions of Europe (43.2% of the fund), the Pacific (27.4%), and North America (7.8%). Top holdings include stocks like Novartis AG, HSBC Holdings, Roche Holding AG, Shell, and Nestlé.
In the past five years, VYMI has gained about 49.4%. During that time, this fund has underperformed the S&P 500 (which is up 70.1%), but has outperformed the Vanguard Total International Stock Index Fund ETF, which has gained 28.6%.
VYMI has a P/E ratio of 14.8, which is quite a bit cheaper than NOBL's P/E multiple.
Why buy VYMI instead of NOBL
Both of these dividend stock ETFs have a track record of underperforming the S&P 500 index. Higher yields on dividends don't always translate to stronger stock returns. But if I had to choose one of these dividend ETFs to buy, I would buy VYMI.
When comparing NOBL vs. VYMI, VYMI has a lower expense ratio (0.07%) and gives you greater diversification, with exposure to more than 1,500 stocks from dozens of international markets. The stocks held by NOBL have a solid track record of dividend growth, but haven't delivered strong enough annual returns to justify a fee that's 0.28% higher than VYMI's. VYMI also has a higher dividend yield (3.64%).
The diversification and lower P/E ratio of the Vanguard International High Dividend Yield ETF offer more intriguing upside than the NOBL portfolio of only 69 U.S. stocks. VYMI is likely to be a better buy than NOBL for most long-term dividend investors.
