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. Invesco DWA Tactical Multi-Asset Income ETF (NASDAQ:DWIN)
Dividend Yield: 5.77%
Dividend average annual growth rate: 13.6% for the last three years
This Fund tracks the performance of the Dorsey Wright Multi-Asset Income Index and generally will invest at least 90% of its total assets into securities that comprise the underlying index. This ETF also invests its assets in other Invesco-branded funds. As of September 24, 2019, the fund allocated all $42.3 million of its assets almost evenly across just five holdings — Invesco Taxable Municipal Bond (BAB), Invesco Emerging Markets Sovereign Debt ETF (PCY), Invesco Preferred ETF (PGX), Invesco Global Short Term High Yield Bond ETF (PGHY) and Invesco Senior Loan ETF (BKLN). The spread of asset allocation ranges from a high of 21% for PCY to the lowest allocation of 19.23% for BKLN.
The fund has enhanced its annual distribution nearly 50% over the past three years since inception in 2015. This advancement is equivalent to a 13.6% average annual growth rate. The current $1.42 annual dividend amount is 16.3% higher than the annualized payout from the same period last year and yields 5.77%. Share price growth contributed to a total return of 8.6% over the trailing 12 months.
Best dividend ETFs #2. iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ:EMB)
Dividend Yield: 5.44%
Dividend average annual growth rate: 4.6% for the last three years
The iShares J.P. Morgan USD Emerging Markets Bond ETF seeks to track the investment results of an index composed of U.S. dollar-denominated emerging market bonds. As of September 24, 2019, the fund had $15 billion in total assets distributed across 479 individual holdings, excluding cash positions and derivatives such as futures and currency forwards.
The fund’s current monthly dividend distributions combine for a $6.17 annualized payout. This payout level corresponds to a 5.44% forward dividend yield, which is nearly 15% higher than the fund’s own 4.74% average yield over the last five years.
Because dividend distributions just funnel the dividend payouts of the fund’s underlying holdings, the monthly distributions, as well as total annual payouts vary from year to year. However, the total annual distributions rose during four of the last six years. Over that period, the total annual payout rose 21%, which is equivalent to an average annual growth rate of 3.2%.
Best dividend ETFs #3. SPDR Wells Fargo Preferred Stock ETF (NYSEARCA:PSK)
Dividend Yield: 2.5%
Dividend average annual growth rate: 6.3% for the last three years
With nearly $1 billion in total net assets, this fund seeks to provide investment results that correspond generally to the total return performance of the Wells Fargo Hybrid and Preferred Securities Aggregate Index before fees and expenses. As of September 24, 2019, the fund’s assets were allocated across 162 individual holdings. The allocation is fairly balanced, with only one holding accounting for more than 2% of the ETF’s asset shares. The top 10 holdings account for 15.8% of total net assets and the top 25 holdings account for less than one third of total net assets.
At the beginning of 2018, the fund switched from paying quarterly dividends to a monthly distribution schedule. The monthly dividend was $0.20 for the first 11 months, with a slightly higher year-end distribution in December. The current $2.40 annualized distribution corresponds to a 5.44% forward yield, which is just slightly below the fund’s 5.58% five-year yield average.
After a brief pullback in late 2018, the share price recovered to rise by nearly 4% and produced a combined total return of nearly 9% over the trailing 12 months. This ETF’s three-year total return exceeded 12% and over the last five years reached above the 30% mark.
Best dividend ETFs #4. VanEck Vectors Fallen Angel High Yield Bond ETF (NYSEARCA:ANGL)
Dividend Yield: 5.4%
Dividend average annual growth rate: 1% for the last three years
The fund to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE BofA ML U.S. Fallen Angel High Yield Index. This index is comprised of below investment grade corporate bonds that are denominated in U.S. dollars, issued in the U.S. domestic market and were rated as investment-grade at the time of issuance.
The fund’s 197 holdings combine for nearly $1.2 billion in total assets. Among the holdings, nearly 75% are United States securities. Most of the remaining holdings comprise investments in Italy (6.52%) and the United Kingdom (6.27%). Japan (5%), Germany (3%) and Canada (1.34%) are the only other countries with a substantial share of assets. Equities from Sweden, China, Finland and Ireland contribute less than 1% each.
A recent share price uptick suppressed the fund’s current 5.4% yield to a figure that is 4% below the fund’s own 5.62% yield average over the last five years. While pushing the yield down, the share price advancement contributed to a combined total return of 6.6% over the trailing year. This ETF’s three-year total returns were 20%. Over the last five years, this ETF’s total returns were 35%.
Best dividend ETFs #5. iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA:HYG)
Dividend Yield: 5.27%
Dividend average annual growth rate: -0.9% for the last three years
The fund tracks the composition and performance of the Markit iBoxx USD Liquid High Yield Index, which is comprised of U.S. dollar-denominated, high-yield corporate bonds. As of September 24, the fund had more than $18 billion in net assets allocated across 989 individual holdings.
Two sectors — Consumer Goods with almost 30% and Communications with nearly 24% — account for more than half of the fund’s assets. However, only one individual holding has a share that exceeds 1%. All other holdings account for 0.65% or less. The top half of this ETF’s holdings account for just slightly more than 70% of the fund’s total asset share.
The fund’s share price and dividend distributions rose in unison over the past few years and the current 5.27% yield is in line with the fund’s five-year yield average of 5.29%. The share price and dividend income payouts have combined to deliver a 6.2% total return over the trailing 12-month period. Over the past three years, the total return has exceeded 16% and has even approached 20% over the last five years.
Best dividend ETFs #6. First Trust CEF Income Opportunity ETF (NASDAQ:FCEF)
Dividend Yield: 5.30%
Dividend average annual growth rate: 2.1% for the last three years
The fund is an actively managed ETF with a primary objective to provide current income Its secondary goal is to seek total returns. Under normal market conditions, the fund seeks to invest at least 80% of its net assets into closed-end investment companies that are listed and traded in the United States on registered exchanges.
As of September 24, 2019, the fund is comprised of 46 individual holdings, excluding cash positions. Nearly 80% of the assets are invested in U.S.-based holdings, with the remaining holdings split between holdings in Europe and Asia. Only 5.5% of the assets are invested in emerging markets, which limits the potential upside and also mitigates the exposure to risk.
The fund’s current $0.098 monthly distribution is 3.2% higher than the $0.095 payout from the same period last year. Annualized at $1.18, the current distribution yields 5.3%. Over the past three years, this ETF’s monthly payout amount advanced more than 7% for an average growth rate of 2.1% per year. Dividend distributions, when combined with asset appreciation, have rewarded shareholders with 6% total returns over the trailing 12 months and a total return of more than 27% over the last three years.
These six dividend-paying ETFs offer income-producing investment opportunities that are well worth considering. For people whose investment goals include dividend investing and the diversification that is 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.