Dividend ETFs have been the fastest-growing category so far this year, attracting $45 billion in inflows, according to research by Morningstar Inc. Their popularity is understandable: Investing in dividend-paying exchange-traded funds can ease investors’ anxiety about picking the right stocks amid macroeconomic unknowns and can be an additional source of income.
Of course, stock dividends are not guaranteed. If a company falls on hard times, not only might the price of the stock fall, but the dividend may be reduced, or eliminated.
On the bright side, companies also raise dividends. For example, some of the biggest Wall Street banks, like Bank of America, Morgan Stanley and Goldman Sachs, have announced planned increases to dividend payouts in recent weeks.
For those of you managing your own equity allocations with a dividend mindset, ETFs are a great way to establish a diversified portfolio of dividend-payers without the single-stock risk you’d experience buying individual securities. Here’s a list of some of the most popular dividend-focused ETFs to help with additional research into a very compelling type of ETF.
This ETF seeks to replicate as closely as possible the Morningstar US Dividend Valuation Index, which is intended to track the overall performance of high-dividend-yielding U.S. companies with strong financial health and attractive valuations according to Morningstar analysis.
Comprising dividend-oriented stocks, along with covered calls on individual stocks, DIVO uses a proven approach to achieve equity income through active management with lower volatility. The dividend and option income is intended to provide lower volatility than the overall market, especially during market declines.
Wealth Builder’s goal is to provide a core holding that seeks to be tax efficient. WLTH is a low-cost, actively managed investment that seeks to pay a monthly dividend that also seeks returns competitive with global stocks with less volatility. WLTH can invest up to 90% in stocks, and pays a monthly dividend distribution. The ETF can own small and midcap stocks and invest in non-U.S. stocks and non-U.S. bonds. It can be a core holding for intermediate and long-term investors as well as investors seeking a broad range of asset classes and global markets. It seeks to provide risk-adjusted returns and minimize downside risk.
VIG has $62 billion in assets under management. It has very an expense ratio of just 0.06%. The ETF invests in approximately 250 of the largest dividend payers in the U.S. The fact that it invests in such reliable sources of dividends over a widely distributed portfolio, has low expenses and a dividend yield of 1.9% has made VIG a very popular core holding.
If you want a large cap dividend ETF like VIG but are looking for more yield, then SCHD might suit you. Like VIG, this fund only charges 0.06% in annual fees. With $36 billion in assets, it invests in fewer stocks than VIG, approximately 100 holdings. But approximately 40% of SCHD’s assets are in the top 10 positions alone, which adds to the potential volatility. It has a dividend yield of 2.9%.
SDIV is small, with just $745 million in assets. But the fund invests in companies not found in many other dividend ETFs. Companies like Chinese real estate firm Logan Property Holdings Co. and Brazilian utility CPFL Energia SA are among the fund’s approximately 100 stocks. There’s definitely more risk in this ETF, but that might be worth the higher yield of 11.1%.
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