Dividend investing is one of the most time-tested methods for building long-term wealth. Many people choose dividend-paying stocks because of the yield and the dividend they receive for being a share owner. Getting cash for holding stocks sounds like a good deal, especially for those looking for passive income to live on during retirement.
The problem is the need for more diversification instead of just owning a couple of dividend stocks. That is where a qualified dividend ETF can help smooth those rocky times in the market.
Many dividend ETFs claim to be the best on the market, but what makes them the best? Is it the yield? Could it be the appreciation of the fund? Maybe the fund has a large cult following.
In this article, we will examine seven of the best dividend ETFs to determine which could be the best.
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What Is a Dividend ETF?
First, a dividend is a cash payout to the stock owner as a share of a company’s profit. Many people use dividend investing and dividend stocks to create their passive income.
Dividend ETFs do a similar thing. It creates an exchange-traded fund, like a mutual fund on the stock market, comprised primarily of dividend-paying stocks. Those stocks that do not pay dividends are usually excluded.
Many of these dividend ETFs yield anywhere from 2% to 5% or 6%. With the ups and downs of the market, you will receive a reasonable cash payment from owning the fund.
You can use a low-cost brokerage like M1 Finance to find an ETF that fits your needs.
What Is The Best Dividend ETF?
Here is a list of seven excellent dividend ETFs you could choose from. Each one has its advantages and disadvantages.
SCHD: Schwab Us Dividend Equity ETF
SCHD has been a hit with investors. Schwab created it at the end of 2011 as the bull market began. SCHD tracks the Dow Jones Industrial 100 Dividend Index.
It comprises 102 different companies that have been growing their dividend for the last ten years. It is considered a high-growth dividend ETF, with dividend growth averaging 12% in the previous five years.
SCHD is an attractive dividend ETF in your portfolio because it has an attractive yield of 3.54% and a capital appreciation that has seen a similar overall performance over the last ten years to the S&P 500. It has averaged 12.22% over the last ten years and has a low expense ratio of 0.06%, making a much cheaper ETF for your portfolio.
Those interested can see that SCHD and VOO, an S&P 500 ETF, have similar overall performances, but SCHD has a higher yield making it attractive for those dividend investors.
If you are looking for a good yield of over 3% and a high overall performance of over 12%, SCHD may be the best dividend ETF for your portfolio.
VYM: Vanguard High Dividend Yield ETF
VYM is another great dividend ETF many people flock to add to their portfolios. VYM is a Vanguard ETF that tracks the FTSE High Dividend Yield Index. VYM’s primary goal is to be a fund comprised of high dividend-paying stocks.
Unlike SCHD, VYM comprises many more different stocks giving it a higher diversification and less concentration. It holds 440 stocks within the fund, reducing exposure to volatility in the market if one stock really tanks.
VYM has an excellent yield of 3.09%, making it attractive to many investors. It is not the highest yield on this list, but with a low expense ratio of 0.06%, it can surely beat many other dividend ETFs.
The performance of VYM is a steady one averaging a little over 10% over the last ten years, which will allow not only the growth of your money but you are still receiving that 3% dividend in the process.
For those investors looking for a much larger diversification in their portfolio with many high dividends-paying stocks, they can look no further. VYM could be the best dividend ETF for you.
VIG: Vanguard Dividend Appreciation Index Fund ETF
VIG is another great Vanguard ETF that tracks the S&P Dividend Growers Index. Its primary goal is to have a large-cap dividend-growing company portfolio that increases its dividends yearly.
VIG has a similar concept to SCHD but a higher concentration in information technology companies. These companies include Microsoft, Apple, Visa, and Mastercard, which comprise four of their top ten holdings.
VIG may not be the highest-yielding dividend ETF on this list. It has a yield of 1.89%, significantly lower than all the rest of the ETFs on the list. It does have a low expense ratio of 0.06%, meaning it costs $6 for every $10,000 invested.
Even though the yield is relatively low, with the higher concentration in tech companies, it will skyrocket during tech booms. It has an average performance of the last ten years of 11.09%, which is the third-best performance on this list.
If you are an investor looking for more concentration in tech companies paying dividends, VIG could be your portfolio’s ETF.
SPHD: Invesco S&P 500 High Div Low Volatility ETF
SPHD is a dividend ETF that tracks the S&P 500 Low Volatility High Dividend Index. It is composed of 50 stocks that have a history of high dividends and low volatility.
SPHD has a high yield of 4.59%, making it one of this list’s highest yields. It has an overall performance of 8.60% average over the last ten years, less than VIG or SCHD. The expense ratio is much higher, with 0.30%, among the highest on this list.
If you are an investor looking for large-cap high-dividend stocks with low volatility, then SPHD could be the best fit. It also has a desirable dividend yield compared to many other dividend ETFs.
HDV: iShares Core High Dividend ETF
HDV is an iShares dividend ETF that tracks an index composed of relatively high dividend-paying U.S. equities. It is comprised of 75 dividend-paying stocks that have a higher concentration in the energy and healthcare sectors, which makes up more than half of the portfolio.
HDV has a low expense ratio of 0.08%, making an excellent low-fee ETF for your portfolio. The dividend yield is 4.30%, which makes a great find for those mainly seeking income over performance.
The overall performance average over the last ten years has been 8.37%. It is lower than the rest of the dividend ETFs on this list, but it does have an excellent yield.
If you are looking for a dividend ETF with a higher concentration in the energy and healthcare sector, then HDV could be the best dividend ETF for you. It comes with an excellent yield, a low expense ratio, and a decent return.
NOBL: ProShares S&P 500 Dividend Aristocrats ETF
NOBL is the S&P 500 Dividend Aristocrats ETF. Its primary function is to seek investment results that track the performance of the S&P 500® Dividend Aristocrats® Index. This includes companies that have increased their dividends for 25 years.
For those investors that look for stability, it is hard not to look at NOBL. It is made up of 67 companies that continue to grow their dividends every year.
NOBL has been around for a short time as most of these other dividend ETFs. It was created in 2013, but since its inception, it has had an overall performance of 11.34%, which is high compared to many of the other dividend ETFs.
It has a yield of 2.59%, which is pretty average yield among the list of dividend ETFs. NOBL also has a 0.35% expense ratio, making it the most expensive fund on this list in terms of fees.
If you are looking for a good dividend ETF that tracks the Dividend Aristocrats and has companies that continue to grow their dividend for at least 25 years, then NOBL could be the best dividend ETF for your portfolio.
SDY: SPDR® S&P® Dividend ETF
SDY is a State Street ETF tracking the S&P® High Yield Dividend AristocratsTM Index. The index measures the performance of high-yield paying S&P Composite 1500 Index constituents. Those companies included in the SDY have been growing their dividend for the last 20 years.
The stocks are then weighted by indicated yield (annualized gross dividend payment per share divided by price per share), and then each quarter, the weight is adjusted.
SDY has about 121 holdings with an expense ratio of 0.35%, making it one of the most expensive ETFs on this list. Its yield is 2.60%, and a 10-year average return of 10.48% makes SDY a pretty good ETF for most investors.
SDY is considered one of the better mid-cap value ETFs. They are giving investors exposure to other companies outside of the S&P 500.
If you want to add some mid-cap value ETFs to your portfolio, SDY could be the best dividend ETF for you.
Bottom Line
There are many different dividend ETFs out there to choose from when investing in the stock market. These seven dividend ETFs are diverse and offer investors various options that can be right for them and their portfolios.
There is no correct answer as to which ETF is the best dividend ETF, but there are options, and one could be the best for you. It could be SCHD with high dividend growth and overall average or SPHD with a high yield. Any of those could work for you. Make a choice and start investing today.
What’s most important to you when considering an investment option?
This article originally appeared on Wealth of Geeks.
About the author: Steve Cummings is the founder of the personal finance blog The Frugal Expat. As a traveler and expat, he has learned a lot about how to save money, live frugally, and invest for the future. His mission is to help people in save, invest, and reach financial independence.
I’m John Schmoll, a former stockbroker, MBA-grad, published finance writer, and founder of Frugal Rules.
As a veteran of the financial services industry, I’ve worked as a mutual fund administrator, banker, and stockbroker and was Series 7 and 63-licensed, but I left all that behind in 2012 to help people learn how to manage their money.
My goal is to help you gain the knowledge you need to become financially independent with personally-tested financial tools and money-saving solutions.
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