Investors have hunted for strong dividend stocks for decades, and the recent low interest rate environment has made it even more important for investors to focus on these income-producing investments. To get a wide array of these income-investor favorites in a single investment, exchange-traded funds that specialize in dividend stocks can be the answer to all of your needs. The following five ETFs are among the most popular for dividend investors, and they can help give you the income you need from your investment portfolio.
|
Dividend ETF |
Assets Under Management |
Expense Ratio |
5-Year Average Annual Return |
|---|---|---|---|
|
Vanguard Dividend Appreciation (VIG 1.25%) |
$26 billion |
0.08% |
12.9% |
|
Vanguard High Dividend Yield (VYM 1.03%) |
$20.2 billion |
0.08% |
14% |
|
iShares Select Dividend (DVY 0.35%) |
$17.1 billion |
0.39% |
14% |
|
SPDR S&P Dividend (SDY 0.60%) |
$16 billion |
0.35% |
14.5% |
|
Schwab U.S. Dividend Equity (SCHD 0.59%) |
$6.5 billion |
0.07% |
14.5% |
Data source: Fund providers.
Vanguard's dividend dominance
Vanguard Group has a stranglehold on the dividend ETF universe, with its two largest funds topping the list. Both funds have a focus on dividend stocks, but each takes a different tack toward offering investors exposure to these income-producing investments.
Vanguard High Dividend Yield takes a more standard approach at dividend investing, concentrating largely on the stocks that have the highest current yields in the market. Although that philosophy can lead investors to fall into dividend traps from time to time, the ETF's performance has been quite strong over the past five years.
By contrast, Vanguard Dividend Appreciation looks the most at stocks that have put up a consistent track record of raising their dividends on a regular basis. Dividend growth is the key pathway to success in the eyes of the managers of this ETF. Returns have lagged those of its more yield-focused peers, but Vanguard Dividend Appreciation has high hopes that it will produce outperformance in the long run.
Image source: Getty Images.
iShares weighs in
Fund giant iShares has an ETF for nearly every niche, and dividend stocks are no exception. iShares Select Dividend tracks a benchmark that's much more selective than its Vanguard peers, with the iShares ETF holding about 100 stocks compared to roughly 400 stocks for the Vanguard High Dividend Yield fund.
A difference in philosophy has also delivered strong results. The iShares ETF is weighted by dividend rather than market capitalization, giving relatively high-yield companies greater weight than they'd otherwise receive. With a mix of high-yield and dividend-growth stocks, the iShares fund has delivered strong performance despite having annual expenses that are somewhat higher than the norm.
Other competitors stake their claim
The other fund companies sporting solid dividend ETFs have sought to distinguish their products. SPDR S&P Dividend includes stocks of various sizes that qualify for the High Yield Dividend Aristocrats Index. That requires a 20-year track record of consecutive rising annual dividends, and that narrows the fund's universe to just over 100 stocks. This combines elements of both Vanguard funds, and the resulting performance has been extraordinarily good.
Newcomer Schwab also has a dividend ETF. Dubbed simply U.S. Dividend Equity, the Schwab offering has the lowest fees of any ETF on the list, and its performance has been rock-solid. The ETF follows the Dow Jones U.S. Dividend 100 Index, which includes stocks of various sizes that have made dividend payments for at least 10 years and have relatively high yields and solid long-term dividend growth. Balance sheet strength and return on equity are also considered in choosing stocks.
Using the best dividend ETFs
Each of these five ETFs has their pros and cons, with slight differences in investing style making some funds appeal more to particular sets of investors than others. All of them have delivered solid returns to their shareholders over the long run. If you want healthy income from your portfolio, these five dividend ETFs have what it takes to give you what you need.
