6 Best Dividend ETFs to Buy Now
By: Ned Piplovic,
While selecting an exchange-traded fund (ETF) upon their introduction in the mid-1990s was relatively easy because of limited availability, the expanded selection since then makes identifying the best dividend ETFs more difficult and time-consuming today.
Between 1999 and 2017, the total number of mutual funds rose 17% but the number of available ETFs increased more than 63-fold, or 6,223%. However, mutual funds still outnumbered ETFs five-to-one at the end of 2017. While the number of mutual funds peaked in 2015 and has declined over the subsequent two years, the number of ETFs continues to increase
A key decision driver in any equity selection process should be an individual’s investment strategy. Because no one investment could be expected to fulfill all of the requirements of an investor, different equities are needed to achieve diversification.
Additionally, investors must adjust their strategy as their financial needs change. Younger investors can afford more risky investment strategies that are weighted heavily toward capital accumulation and possibly reduced tax liability. However, older investors typically divest from risky investments and shift their strategy toward capital depletion or income distribution.
As with every investment decision, individual investors should do their own research to evaluate every investment suggestion and act only after a particular equity is found to fit into his or her investment strategy.
Here are six of the best dividend ETFs to consider.
Best dividend ETFs #1.
WisdomTree U.S. Quality Dividend Growth Fund (NASDAQ:DGRW)
Dividend Yield: 1.8%
Dividend average annual growth rate: 7.57% last three years
This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and has allocated $2.15 billion of its total assets across 10 sectors and 292 individual holdings. The Information Technology sector accounts for nearly 22% of total assets, while Industrials and Health Care sectors contribute approximately 18% each.
The most represented individual holding is Exxon Mobil (NYSE:XOM) with a 5.22% share. Microsoft (Nasdaq:MSFT), 4.63%, and Johnson & Johnson (NYSE:JNJ), 4.26%, round out the top three holdings. The top 10 holdings account for 34% of the fund’s total assets and include long-term dividend growth companies, such as Intel (Nasdaq:INTC), PepsiCo (Nasdaq:PEP) and Boeing (NYSE:BA).
The fund’s annual dividend payout rose four out of the last five years. The one year that the fund missed its annual dividend boost, it was by just 0.4% The share-price increase of 12% over the past year combined with the divided distribution income for a 14.8% total return. Over the past three years, the total return was 37.8%. For the past five years, its total return reached 87.5%.
Best dividend ETFs #2.
First Trust Rising Dividend Achievers ETF (NASDAQ:RDVY)
Dividend Yield: 1.3%
Dividend average annual growth rate: 1.77% last three years
Instead of tracking the entire underlying Index, this fund selects its holdings from the equities in the NASDAQ U.S. Benchmark Index. The fund disregards all real estate investment trust’s (REITs) and all eligible equities must have a minimum average daily dollar trading volume of $5 million over the preceding three months.
Additionally, companies must show higher annual dividend payouts and earnings per share than in specific past periods. Also, the company’s cash-to-debt ratio must exceed 50%, the current annual payout ratio must be less than 65% and no sector can represent more than 30% of total assets. The eligible equities receive a composite score ranking based on the dividend increase record, current dividend yield and the payout ratio.
As of June 2018, the Financials sector is at the fund’s maximum allowed asset share of 30%, the Consumer Discretionary sector contributes 22% and Information Technology completes the top three sectors with nearly 20%.
While Assurant, Inc. is the fund’s top holding with a 2.12% share, the ETF’s assets are distributed relatively evenly. The top 10 holdings combined account for 20.5% of total assets and the bottom 10 holdings account for 19.4% of total assets.
The ETF advanced its share price 13.6% and paid a $0.50 annual dividend for a total return of 15.6% over the past year. The combined share price and dividend growth continued from the past three-year period when the fund achieved a 42.6% total return.
Best dividend ETFs #3.
Schwab U.S Dividend Equity ETF (NYSE:SCHD)
Dividend Yield: 2.5%
Dividend average annual growth rate: 6.3% last three years
This fund tracks the performance the Dow Jones U.S. Dividend 100™ Index and invests at least 90% of its net assets in stocks of the underlying index. The fund’s investment in 118 individual equities equals nearly $7.6 billion in total assets.
Consumer Staples (25%), Information Technology (20%) and Industrials (19%) are the funds top three sectors. As individual holdings, PepsiCo (Nasdaq:PEP), 4.73%, Home Depot (NYSE:HD), 4.63%, and Procter & Gamble (NYSE:PG), 4.59%, make up nearly 14% of the fund’s total assets. The top 10 holdings combine for a 44% of total assets.
The share price experienced minimal volatility and nearly doubled since the fund’s inception in 2011. The fund also increased its annual dividend every year since its inception at an average growth rate of nearly 9% per year. The share price rose 10% and combined with the rising dividend income to achieve a 13% total return over the past 12 months.
Best dividend ETFs #4.
Vanguard High Dividend Yield ETF (NYSE:VYM)
Dividend Yield: 2.9%
Dividend average annual growth rate: 7.6% last three years
Based on the FTSE High Dividend Yield Index, the fund seeks investments in companies that generally pay higher-than-average dividends. As of May 31, 2018, the Large Value fund had nearly $29 billion in assets distributed over 379 individual holdings.
With a combined share of more than 44%, Technology (17.5%), Financials (13.9%) and Health Care (12.7%) sectors account for nearly half of the fund’s assets. The top five individual holdings – Microsoft (Nasdaq:MSFT), 7.50%, JPMorgan Chase (NYSE:JPM), 3.74%, Exxon Mobil (NYSE:XOM), 3.48%, Johnson & Johnson (NYSE:JNJ), 3.26%, and Intel (Nasdaq:INTC), 2.63% – account for more than 20% of total assets.
Since the ETF’s formation in 2006, the total annual dividend payout failed to rise only twice – in 2009 and 2010. After resuming its annual dividend boosts in 2010, the total annual payout advanced nearly 130% over the past eight consecutive years, which corresponds to an average growth rate of nearly 11% per year.
The fund’s share price suffered its only significant decline in the aftermath of the 2008 financial crisis. Since its all-time low in February 2009, the share price gained 265%. The combined total return over the past 12 months was 9.75%, with the three and five-year total returns coming in at 32% and 71%, respectively.
Best dividend ETFs #5.
First Trust Preferred Securities and Income ETF (NYSE:FPE)
Dividend Yield: 5.22%
Dividend average annual growth rate: 7.6% last three years
Under normal market conditions, this Large Blend fund tracks the performance of the NASDAQ US Dividend Achievers Select Index. As of May 2018, the ETF managed more than $34 billion of total assets spread across 182 individual holdings. The three top sectors – Industrials (32.8%), Consumer Services (19.1%) and Healthcare (12.1%) comprise 64% of the fund’s assets.
While the 10 largest holdings correspond to 30.4% of total assets, the top three individual holdings – Microsoft (Nasdaq:MSFT). 4.3%), Johnson & Johnson (NYSE:JNJ), 3.7%, and Walmart (NYSE:WMT), 3.7% – combine for 11.7% of total assets.
In addition to the long-term dividend growth and assed appreciation, the share price ascended 11% and the rising dividend income added more growth to combine for a total return of 13.1% over the trailing 12 months.
Best dividend ETFs #6.
iShares Core Dividend Growth ETF (NYSE:DGRO)
Dividend Yield: 2.11%
Dividend average annual growth rate: 21.7% last three years
The fund tracks the investment results of the Morningstar U.S. Dividend Growth Index. As of June 2018, the ETF’s investments comprised of 455 individual holdings with aggregate net assets of more than $3.1 billion. The three most represented sectors, Financials (18.6%), Healthcare (17.2%) and Information Technology (16.2%), account for more than half of the fund’s total assets.
Microsoft (Nasdaq:MSFT) with a 2.96% share, Apple (Nasdaq:AAPL) with a 2.9% share and Johnson & Johnson (NYSE:JNJ) with a 2.88% share are the fund’s three largest holdings and combine for 8.74% of total assets. The top 10 holdings account for 26% of the fund’s assets.
The ETF’s share price has been on a steady uptrend snice the beginning of 2016. Aside from a small price spike in January and a subsequent decline in February 2018, the share price remained on a steady growth trend and ascended nearly 11% over the past 12 months. The dividend income continued its series of annual dividend hikes and added a few percentage points for a 13.2% combined total return over the past one year and a 38.2% total return over the past three years.
These six dividend-paying ETFs offer income-producing investment opportunities well worth considering. For people whose investment goals include dividend investing and the diversification offered by these funds, the ETFs featured in this article may be worth buying.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.