The Capital Group Dividend Value ETF (CGDV 0.23%) is one of the largest exchange-traded funds focused on dividend-paying stocks. The fund has nearly $17.7 billion in assets under management (AUM), ranking as the eighth largest fund dedicated to dividend investment. Its focus on dividends makes it a popular option for those seeking passive income.
While CGDV is one of the largest and most popular dividend ETFs, that doesn't necessarily mean it's the best for passive income. Here's a closer look at the fund and how it compares with other top dividend ETFs.
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A closer look at the Capital Group Dividend Value ETF
The Capital Group Dividend Value ETF is an actively managed fund that seeks to invest in companies that produce above-average dividend income and can grow in value. It primarily invests in larger U.S. companies that pay dividends. However, the fund will invest up to 10% of its assets in larger companies outside the U.S. and some stocks that don't currently pay dividends but have the potential to pay them.
CGDV currently has about 50 holdings, 90% of them U.S.-based, with 7% based outside the United States, and the remaining 3% consisting of cash. It has a reasonably diversified portfolio of dividend stocks by sector, led by technology stocks at 22%. Here's a snapshot of its top five holdings:
- Microsoft, 6.4% of the fund's holdings: While the technology giant has a rather low dividend yield at less than 1%, it was the largest dividend payer in the world last year, at nearly $23 billion. It has also increased its payment for 20 straight years, including by more than 10% last year.
- Broadcom, 5.6%: The semiconductor and software company has a dividend yield below 1%. It has increased its dividend for 14 straight years, including by 11% last year.
- RTX, 4.7%: The aerospace and defense contractor has a nearly 2% dividend yield. It has paid cash dividends every year since 1936 and raised its payment by 7.9% this year.
- British American Tobacco, 4.1%: The tobacco company has a dividend yield exceeding 6%. It has grown its dividend at a 5% compound annual rate over the past decade.
- GE Aerospace, 4.1%: The aerospace company has a roughly 0.5% dividend yield. It increased its dividend nearly 30% earlier this year.
As those top holdings show, the fund holds a mix of higher-yielding dividend stocks and lower-yielding but faster-growing dividend payers.
Over the past 12 months, CGDV has paid dividends equating to a 1.5% yield. That's above the S&P 500's average of less than 1.5%.
Is CGDV the best dividend ETF for passive income?
The Capital Group Dividend Value ETF provides investors with an above-average dividend yield compared with the S&P 500, making it a better option than the broader market index for those seeking passive income.
However, several other ETFs have higher dividend yields. For example, the iShares Core High Dividend ETF (HDV 0.61%) has a 3.5% dividend yield based on its payments over the trailing 12 months. Meanwhile, the SPDR Portfolio S&P 500 High Dividend ETF (SPYD 0.09%) has a dividend yield of around 4.5%.
iShares Core High Dividend ETF is a passively managed fund that tracks the performance of the Morningstar Dividend Yield Focus Index. That index screens for companies with attractive dividend yields and strong financial qualities. The fund holds 75 companies. Its top holdings all have well-above-average dividend yields, and most companies have solid records of increasing their dividend payments.
SPDR Portfolio S&P High Dividend ETF is also a passively managed fund. It aims to track the S&P 500 High Dividend Index, which measures the performance of the top 80 high-dividend-yielding companies in the S&P 500.
In addition to their higher yields, these funds also have lower costs. The actively managed Capital Group Dividend Value ETF has a 0.33% ETF expense ratio. That compares with 0.08% for the iShares Core High Dividend ETF and 0.07% for the SPDR Portfolio S&P High Dividend ETF. Put another way, every $10,000 invested in CGDV would cost $33 annually, compared with $8 for HDV and $7 for SPYD. CGDV's higher costs eat into the dividend income it would have paid to investors.
A good dividend ETF, but not the best for passive income
The Capital Group Dividend Value ETF is a solid fund for those seeking to invest in companies with above-average dividend yields and solid growth profiles. Those features could enable the fund to produce attractive total returns over the long term.
However, it's not the best dividend ETF if your goal is generating passive income. It has a much lower yield and higher expense ratio than other top dividend ETFs, such as the iShares Core High Dividend ETF and the SPDR Portfolio S&P High Dividend Those ETFs are better options for those currently seeking to generate more passive income.
