7 of the Best High-Dividend ETFs: Investors seeking higher-than-average income for their portfolio should consider these ETFs, we will discuss about the The Best High-Dividend ETFs: check 7 of Them below.
Reinvesting dividends is key to higher returns
Dividend investing is a popular strategy for novice and advanced investors alike – and for good reason. A portfolio of high-quality, blue-chip dividend stocks can help investors learn the importance of compounding, holding for the long term and staying diversified.
In taxable accounts, qualified dividend payments from some U.S. stocks are also taxed at a more favorable rate. When reinvested, dividend payments contribute a good amount of an investment’s total returns. While investors can pick their own portfolio of dividend stocks, a hands-off and diversified approach might be via a dividend exchange-traded fund, or ETF. Here are the seven best high-dividend ETFs to buy today.
Schwab U.S. Dividend Equity ETF (ticker: SCHD)
SCHD offers investors a transparent, straightforward and easily understandable portfolio of large-cap U.S. dividend stocks. Unlike some dividend funds, SCHD doesn’t use elaborate screeners, quantitative models or employ complex derivatives to enhance yields.
The ETF tracks the Dow Jones U.S. Dividend 100, which selects stocks that have quality fundamentals and a consistent history of dividend payments. SCHD currently pays a distribution yield of 3.5%, which is the yield an investor would have received had they held the ETF over the trailing 12 months. Most of SCHD’s top holdings comprise large-cap value stocks like PepsiCo Inc.
(PEP), Pfizer Inc. (PFE) and Verizon Communications Inc. (VZ). The ETF is very popular, with $37 billion in assets under management, or AUM, largely thanks to its low expense ratio of 0.06%, or $6 for every $10,000 invested annually.
Vanguard High Dividend Yield ETF (VYM)
Some investors might not like how SCHD is concentrated in just 100 or so large-cap stocks. For those looking for a more diversified dividend ETF, VYM might be a good choice. This ETF holds more than 440 large-cap U.S. stocks forecast to have above-average dividend yields in the near future.
Like SCHD, VYM is also passively managed, tracking the FTSE High Dividend Yield Index. However, its top holdings differ a bit, with Johnson & Johnson (JNJ), Exxon Mobil Corp. (XOM), JPMorgan Chase & Co. (JPM), Procter & Gamble Co. (PG) and Chevron Corp. (CVX) occupying the top five slots. Overall, the ETF is weighted more toward financial, health care and consumer staples stocks, making it a potentially decent defensive choice.
The ETF has a 30-day SEC yield of 3.3%, which is the hypothetical annualized income projected based on a trailing 30-day period. VYM has a 0.06% expense ratio.
Vanguard Dividend Appreciation ETF (VIG)
Screening stocks for current or forecasted high dividend yields can cause investors to inadvertently overweight “yield traps.” These are stagnant or unprofitable companies that may only pay high dividends due to a recent drop in share price or an unsustainable payout ratio. To avoid this, investors can buy divided growth ETFs like VIG.
VIG tracks the S&P U.S. Dividend Growers Index, which screens stocks based on whether or not they have historically increased dividend payouts consecutively. As a result, the ETF is not limited to high-yielding stocks and can hold companies with small, but ever-increasing dividend growth like Microsoft Corp. (MSFT), Visa Inc. (V) and Mastercard Inc. (MA). This gives the ETF more balanced sector exposure compared to VYM. Like VYM, VIG also costs 0.06% per year.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
The S&P 500 is a favorite index for many passive investors to buy and hold, but in recent years it has become dominated by megacap growth stocks. In particular, technology sector stocks now comprise around 25% of the index.
Investors who want to target the high-yielding stocks in the S&P 500 instead can buy SPYD. This ETF tracks the S&P 500 High Dividend Index, which only holds the 80 highest-yielding dividend stocks in the S&P 500. Interestingly, the ETF does not use a market-cap-weighted approach.
Each stock in the ETF is currently weighted between 0.9% to 1.6%, for a more or less equal weight between all 80 holdings. For investors trying to avoid excessive concentration in a few stocks, SPYD might be ideal. The ETF has a 0.07% expense ratio.
SPDR S&P Dividend ETF (SDY)
Dividend growth investors looking for a tax-loss harvesting partner for VIG can consider SDY. This index takes the S&P Composite 1500 Index and selects the stocks that have consistently increased dividends every year for at least 20 consecutive years.
Then, the holdings are weighted for yield and rebalanced quarterly. Currently, SDY holds 119 stocks that give it a 12-month trailing distribution yield of 2.7%. This approach makes SDY less passively managed than some of the previous options.
While not quite qualifying as active stock-picking, the ETF can be considered semi-actively managed thanks to its extensive screening process. As such, this higher fund turnover is reflected in the ETF’s costlier expense ratio of 0.35%.
iShares International Select Dividend ETF (IDV)
Dividend stocks aren’t just limited to the domestic stock market. Countries like Canada, the U.K., Japan and Switzerland have many high-quality, blue-chip companies that pay strong yields. To purchase these stocks, investors can buy IDV in lieu of converting currency or using American depositary receipts.
IDV tracks the Dow Jones EPAC Select Dividend Index, which holds 103 stocks from international developed markets. Top holdings include Rio Tinto PLC (RIO), British American Tobacco PLC (BATS) and the Bank of Nova Scotia (BNS).
Currently, IDV pays a high 12-month trailing distribution yield of 7.4%. However, keep in mind that foreign dividends may be subject to a withholding tax. In addition, the cost of indexing foreign equities is generally higher, with IDV costing an expense ratio of 0.49% as a result.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
A dividend aristocrat is a company that has consecutively paid out and increased dividend yields for at least 25 years. There’s not many of these companies out there, so finding them can be somewhat difficult. An easy, hands-off way of accessing a portfolio of dividend aristocrats is via NOBL.
This ETF tracks the S&P 500 Dividend Aristocrats Index, which holds just 64 stocks. The ETF is heavily weighted toward consumer defensive stocks at about 21%, and industrials with about a 22% weighting. The individual companies are weighted fairly equally anywhere between 1% to 2% each, with notable large-caps like Exxon Mobil and Chevron making an appearance. NOBL costs an expense ratio of 0.35%.
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