7 High Dividend ETF Funds

High-Dividend ETF Funds: Investors looking forward to a steady stream of income know well that dividend stocks can be their best investment bet.

Top-of-the-line blue chip companies are often generous when it comes to paying handsome dividends on a regular basis to their shareholders. This is not where it ends, because good companies reward their investors through capital appreciation as well. This rewarding combination of regular income and growth can produce highly satisfying ROI for investors over a period of time.

Dividend-paying exchange-traded funds (ETFs) have been increasingly growing in popularity in recent times as the market for ETFs running into trillions of dollars. Investors who are not too keen on making their own picks are taking the ETF route to gain diversified exposure to top dividend-paying stocks, and thus minimize single-stock risk.

Dividend-paying ETFs offer better yield and more stability to investors’ portfolios. They also tend to perform better during adverse economic conditions. Some ETFs that pay their dividends on a quarterly basis while there are others that offer monthly dividend.

However, what is more important to understand is that different dividend ETFs take dissimilar approach towards managing their investors’ expectations of dividend stocks that they prefer and the income they desire. Keeping this in mind we list here top 7 high-dividend ETFs to ease your entire decision-making process and help you settle upon a wise investment option for 2020.

Vanguard High Dividend Yield (VYM)

Vanguard is a big name in the fund industry. Vanguard caters to a diverse group of investors by offering dozens of different ETFs ranging from highly tailored ETFs to funds that have one of the largest number of stocks in their basket.

Two of its most popular ETFs are Vanguard High Dividend Yield [NYSEMKT: VYM] and Vanguard Dividend Appreciation [NYSEMKT: VIG]. It is important to note that both these ETFs adopt a somewhat different approach.

VYM with current dividend yield of 3.2% and expense ratio of 0.06% offers a better yield than Vanguard Dividend Appreciation. It manages to do so by following a simple strategy of investing in stocks that enjoy a reputation of paying higher yields than their peers.

This ETF has a portfolio of more than 400 stocks with higher concentration of healthcare, consumer, and financial stocks.

It has been an exceptional performer offering on an average annual return of approximately 13%, which is in sync with the market return, though its dividend yield has been higher than that of the broader market.

Another major benefit offered by this /ETF is its incredibly low expense ratio of 0.06%, which attests to its reputation of going easy on investors’ pocket.

For the uninitiated, an expense ratio divulges the cost of an ETF, i.e., the amount that is deducted from your account for the fund’s total annual expenses. For example, if expense ratio for an ETF is 0.44%, it means you have to shell out $4.40 annually for every $1,000 that you invest.

Vanguard Dividend Appreciation (VIG)

The $49 billion Vanguard Dividend Appreciation [NYSEMKT: VIG] tracks the NASDAQ US Dividend Achievers Select Index.

It takes a different approach to Vanguard High Dividend Yield. In contrast to the latter which focuses on high current yield, VIG lays emphasis on stocks that have a solid history of increasing dividend payouts over the years.

VIG has in its basket over 180 stocks, and the interesting thing to note here is that you are more likely to find stocks with low dividend yields, but nevertheless stock with a good track record and commitment of increasing dividend yields year after year.

In fact, NASDAQ US Dividend Achievers Select Index is composed of U.S. stocks with a track record of increasing their dividends for 10 or more years.

It currently offers a dividend yield of 1.8%, which should not come as a surprise because generating a lot of immediate dividend income is not what the fund aspires to do, but instead wants to focus more on companies with a solid record of increasing their dividend.

This is a good plan in fact, as companies capable of increasing their annual dividend for 10 years or more are automatically inferred to be running well.

Vanguard Dividend Appreciation’s average annual return of 12.6% slightly lags behind that of the overall market average or other Vanguard dividend ETFs over the past decade, but it can still be considered fairly respectable.

With a rock-bottom expense ratio of 0.06%, it is pretty inexpensive as well. On the flip side, what can be baffling is the ETF’s zero exposure to oil and gas sector despite presence of heavyweights such as ExxonMobil and Chevron, which enjoy an enviable record of handsomely rewarding their investors with annual dividend increases.

It also misses out on telecommunications stocks, with a miniscule 0.05% of the portfolio in that sector, which means it bypasses behemoths like AT&T, and Verizon, organizations which are considered reliable dividend payers.

All in all, VIG is a better pick for investors who are not too keen on current high dividend income, but desire for more in the future. It should presumably be your preference if you are sold on the idea of owning a broad index whose performance more or less has been in sync with S&P 500, but that invests only in companies which have a record of increasing their annual dividend for a decade or more.

The SPDR S&P Dividend ETF

The SPDR S&P Dividend ETF [NYSEMKT: SDY] is a well-diversified and low-cost portfolio, which seeks to provide investment results that, before fees and expenses, track the performance of the S&P High Yield Dividend Aristocrats Index.

The fund generally invests at least 80% of its total assets in the securities comprising the index. The index is designed to measure the performance of the highest dividend yielding S&P Composite 1500 Index constituents, which consists of the highest-yielding stocks on the S&P Composite 1500 index that have consistently increased their dividends for at least 20 consecutive years. The fund is non-diversified.

Because of its tough screening procedure that includes companies with a track record of consecutively raising dividends for 20 years or more, stocks included in the Index offer both capital growth and dividend income, in contrast to stocks that are pure yield.

The fund holds just 112 stocks and pays a 3.8% dividend yield. Stocks within the index are weighted by yield, which means stocks are assigned positions in sync with their dividend yield, i.e., higher the yield, larger the positions they enjoy. In other words, companies that pay more dividend are given more weightage.

The S&P High Yield Dividend Aristocrats Index is rebalanced each quarter, while constituents may be added or removed twice a year.

Holdings

 

AbbVie Inc.	2.30%
AT&T Inc.	1.91%
International Business Machines Corporation	1.88%
Amcor PLC	1.71%
Cardinal Health Inc.	1.60%
J.M. Smucker Company	1.59%
National Fuel Gas Company	1.52%
People’s United Financial Inc.	1.47%
ExxonMobil Corporation	1.46%
Clorox Company	1.45%

Looking at the portfolio holdings, no single security makes up more than 2.3% of the total assets.

The ETF boasts a massive asset base of over $14 billion and long track record too, starting in 2005.

Expense ratio of 0.35 though slightly on the higher side, is good by industry standards. Over the trailing 10 years, the fund’s annualized return has been 9.47%. Overall, SPDR S&P Dividend ETF SDY is a solid income strategy as its tough dividend screening process weeds out companies with weak fundamentals.

Schwab U.S. Equity Dividend (SCHD)

Schwab U.S. Dividend Equity ETF [NYSEMKT: SCHD] is a market-cap-weighted fund, whose goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Dividend 100™ Index.

It tracks an index focused on the quality and sustainability of dividends, only including firms with a 10-year history of paying dividends.

Even within that space, SCHD uses fundamental strength relative to their peers, based on financial ratio (cash-flow to debt ratio, ROE, dividend yield, and dividend growth rate) to build its portfolio. This approach gives the fund a modest large cap tilt, with more preference for industrials, information technology, and consumer stocks at the cost of financial stocks.

Real estate investment trusts (REITs) are totally excluded. Its overall composition is reviewed annually, while the portfolio is rebalanced quarterly.

Holdings

Symbol	Description	% of Assets
XOM	EXXON MOBIL CORP	5.19
HD	HOME DEPOT INC	5.13
INTC	INTEL CORP	4.95
BMY	BRISTOL MYERS SQUIBB CO	4.71
PFE	PFIZER INC	4.36
PEP	PEPSICO INC	4.35
KO	COCA COLA CO	4.20
VZ	VERIZON COMMUNICATIONS INC	4.19
IBM	INTL BUSINESS MACHINES	4.11
PG	PROCTER + GAMBLE CO/THE COMMON STOCK	3.97

SCHD is ‘top-heavy’, meaning the top 10 holdings of the fund make up 45% of the total. In other words, the performance of SCHD is more dependent on a smaller group of stocks.

For investors seeking momentum, Schwab U.S. Dividend Equity ETF SCHD is a compelling large-cap dividend strategy.

With so much uncertainty and volatility currently in the market, the appeal for dividend investing has gone up considerably.

This is for the simple reason that shielded to a good extent from market volatility, dividend products offer both income and stability.

A straightforward, low-cost fund, it seeks to minimize risk by looking at the best possible combination of profitability with yield.

Over the trailing 5 years, the fund’s annualized return has been 5.85%. SCHD trades well, with strong underlying liquidity and low creation costs. The fund has more than $10 billion in assets, and the dirt-cheap expense ratio of 0.006% makes it incredibly appealing and easy to hold.

Invesco Zacks Multi-Asset Income (CVY)

The Invesco Zacks Multi-Asset Income ETF [NYSEMKT: CVY] is a smart beta exchange-traded fund, which before fees and expenses, is based on the Zacks Multi-Asset Income Index (Index).

The Fund invests at least 90% of its total assets in securities and depositary receipts that comprise the Index. The Index consists of approximately 125 to 150 stocks, which are selected based on a multi-factor proprietary model and comprises of domestic and international companies, including U.S. listed common stocks, American depositary receipts (ADRs) paying dividends, real estate investment trusts (REITs), master limited partnerships (MLPs), closed-end funds, preferred stocks, and royalty trusts.

The Index is computed using the gross total return, which reflects the payment made in form of dividends. The Fund and the Index are rebalanced quarterly. The Fund debuted on 09/21/2006 and is non-diversified.

Expense ratio is 0.97% for this ETF, which makes it on par with most peer products in the space in context of multi-asset ETFs. The fund has a 12-month trailing dividend yield of 4.88% and total assets under management are more than $124 million, which makes it one of the larger ETFs in the Total Market (U.S.) ETFs.

Sector Exposure and Top Holdings

Ticker	Company	% Fund
COG	Cabot Oil & Gas Corp	1.83
D	Dominion Energy Inc	1.41
COF	Capital One Financial Corp	1.38
SIVB	SVB Financial Group	1.35
WFC	Wells Fargo & Co	1.34
CVS	CVS Health Corp	1.29
CMI	Cummins Inc	1.28
AEL	American Equity Investment Life Holding Co	1.26
CAT	Caterpillar Inc	1.25
JPM	JPMorgan Chase & Co	1.23

When you look at individual holdings, Cabot Oil & Gas Corp accounts for about 1.83% of the fund’s total assets, followed by Dominion Energy Inc (1.41%), Capital One Financial Corp (1.38%), and SVB Financial Group (1.35%). The top 10 holdings account for about 13.62% of total assets under management.

Financials enjoy the largest weightage at 40.66%, followed by energy at 14.73%, investment companies at 10.28%, real estate at 9.05%, and industrials at 6.36%.

CVY is one of the most popular funds in the space. With sturdy volume and decent spreads, the fund possesses the ability to offer enough liquidity for both long- and short-term investors.

iShares Core High Dividend (HDV)

The iShares Core High Dividend ETF [NYSEARCA: HDV] seeks to track the investment results of the Morningstar® Dividend Yield Focus IndexSM composed of 75 relatively high dividend-paying U.S. equities screened for high earnings potential, fundamental strength, and dividend sustainability.

Securities in order to be eligible must pass two Morningstar proprietary screens, each designed for added measure of sustainability.

The first is something called economic ‘moat’, which sets it apart from its peers by putting it in a better position to face market downturns.

The second is a forward-looking comparison of assets to liabilities. Stocks are assigned weight by the actual dollar amount they pay as dividend instead of the yield, a factor that displays its preference for larger firms. Real estate investment trusts (REITs) are not included.

Holdings

Ticker	Name	Sector	Weight (%)
XOM	EXXON MOBIL CORP	Energy	9.81
T	AT&T INC	Communication	8.78
JNJ	JOHNSON & JOHNSON	Health Care	7.31
VZ	VERIZON COMMUNICATIONS INC	Communication	7.11
CVX	CHEVRON CORP	Energy	6.56
PFE	PFIZER INC	Health Care	6.28
CSCO	CISCO SYSTEMS INC	Information Technology	4.52
MRK	MERCK & CO INC	Health Care	4.28
KO	COCA-COLA	Consumer Staples	3.81
PEP	PEPSICO INC	Consumer Staples	3.75

Healthcare accounts for roughly 18% of the portfolio, while energy and communication stocks constitute around 16% of the portfolio. Energy stocks, meanwhile, can be volatile performers. HDV is more diversified by holding size, with large-cap stocks making up around 60% of the index, and small- and mid-cap stocks rounding out the portfolio. The top 10 holdings make up over 60% of total assets.

Expense ratio for HDV is 0.08% and for assets under management is over 6 billion. Despite the fund’s somewhat complex screening process, HDV offers clear cut benefits such as a huge asset base, rock-bottom fee, and strong liquidity.

All in all, it has been a long-term performer, with trailing annualized returns of 7.59% since its inception in March, 2011. Stocks in HDV’s portfolio are stocks with moats, and it offers complex high-dividend yield exposure in a low-cost package, which makes it a good holding for investors with a long-term investment horizon.

ALPS Sector Dividend Dogs (SDOG)

The ALPS Sector Dividend Dogs ETF investment [NYSE Arca: SDOG] is a rules-based index that seeks investment results that replicate as closely as possible, before fees and expenses, the performance of the S-Network® Sector Dividend Dogs Index.

The underlying index generally consists of 50 stocks on each annual reconstitution date, which is the third Friday in December.

SDOG starts with the S&P 500, the leading benchmark index for U.S. large capitalization stocks and then equally weighs the five companies in ten of the eleven Global Industry Classification Standard (GICS) sectors with the highest dividend yields. In simple terms, it tracks the overall performance of the highest dividend paying stocks in the S&P 500 on a sector-by-sector basis. The real estate sector is excluded.

Expense ratio for HDV is 0.40% which is higher than many other US large-cap funds, but in sync with its equal-weighted peers. Total assets under management are over 1.6 billion, and current 12-month yield stands at 4.74%.

Top Ten Holdings

Security	Sector	Weight
LYB LyondellBasell Industries NV	Materials	2.45
WRK Westrock Co.	Materials	2.42
EMN Eastman Chemical Co.	Materials	2.39
KHC Kraft Heinz Co.	Consumer Staples	2.33
IBM International Business Machines Corp.	Information Technology	2.25
AVGO Broadcom Inc.	Information Technology	2.24
XOM Exxon Mobil Corp.	Energy	2.18
PRU Prudential Financial Inc.	Financials	2.17
PFE Pfizer Inc.	Health Care	2.17
GILD Gilead Sciences Inc.	Health Care	2.15

The top 10 holdings make up over 22% of total assets. Materials account for roughly 11.32% of the portfolio, while information technology and healthcare constitute 10.78% and 10.42% of the portfolio, respectively.

ALPS Sector Dividend Dogs ETF has an MSCI ESG Fund Rating of BBB. The MSCI ESG Fund Rating is a determinant of a portfolio’s reaction towards long-term risks as well as opportunities arising from environmental, social, and governance factors.

AAA is the best while CCC rating is the worst. The fund trades well with compelling value proposition, investing in some of the largest and most liquid stocks in the world, that are well-known dividend players.

As such, this dividend paying ETF should certainly be on your watch list with its reasonable expense ratio, a good yield, along with a unique index construction methodology, which allows for a high degree of diversification among every S&P sector.

 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.