Top U.S. Dividend ETFs for 2018
What makes a great Exchange Traded Fund (ETF)? What makes a solid U.S. dividend Exchange Traded Fund for your portfolio?
Welcome to the answer!
Wait…back up the truck – what is an ETF and what are the benefits of owning them?
In my last dividend ETF post, where I profiled top Canadian dividend ETFs to consider for your portfolio, I highlighted some benefits ETFs can offer:
- An ETF (Exchange Traded Fund) is a diverse collection of assets (like a mutual fund) that trades on an exchange (like a stock does). This makes an ETF a marketable security.
- Like stocks, since they are bought and sold on an exchange, ETFs can experience price changes throughout the day (although frequently buying and selling of ETFs is not encouraged by me!)
- ETFs typically have lower fees than mutual funds (although not always), which can make them an attractive alternative to equity and bond mutual funds.
- ETFs are easy to buy using a discount brokerage.
- ETFs offer high transparency. Within a few clicks of a button you can find out exactly everything the ETF owns – how many stocks, what % of stocks; bond or cash allocations and much more.
- ETFs can track an index, follow an industry sector, be rules-based like some smart-beta funds are, or be much more. (For the most part, I prefer either plain vanilla, broad market equity indexed ETFs or dividend ETFs. This is because the former provides market-like returns less skimpy money management fees. The latter, those dividend ETFs, can provide income; tangible money you and I can use as we please while offering some long-term growth.)
- ETFs can offer tremendous diversification, reducing individual stock risks, industry risk, or even country bias. While diversification is often the best ally against these risks, but mindful that diversification as a risk mitigation tactic (against stock picking) isn’t bulletproof. (Typically the larger the ETF equity holdings are, the better the chance you’ll own all stock duds and studs as well.)
The benefits of ETFs abound…
When it comes to buying and holding some U.S. dividend ETFs these benefits carry on.
As a follow up to my last post sharing the top Canadian dividend ETFs to buy and hold, today’s post will share what I believe are the top U.S.-listed dividend ETFs to own for both income in the form of distributions and capital/price appreciation in your portfolio.
My top U.S. dividend ETFs
All data and information is current at the time of this post:
|Vanguard High Dividend Yield ETF (VYM)||FTSE High Dividend Yield Index||0.08%||405||2.8%||11.35%|
|Vanguard Dividend Appreciation ETF (VIG)||NASDAQ US Dividend Achievers Select Index||0.08%||182||1.7%||11.26%|
|iShares Core Dividend Growth ETF (DGRO)||Morningstar U.S. Dividend Growth Index||0.08%||452||2%||n/a|
|iShares Core High Dividend ETF (HDV)||Morningstar Dividend Yield Focus Index||0.08%||75||3.4%||8.78%|
|Schwab U.S Dividend Equity ETF (SCHD)||Dow Jones U.S. Dividend 100 Index||0.07%||130||2.6%||11.70%|
|State Street SPDR Portfolio S&P 500 High Dividend ETF (SPYD)||S&P 500 High Dividend Index||0.07%||80||3.8%||n/a|
Vanguard U.S. (and Canada) remain a low-cost ETF leader and investors around the world who hold Vanguard funds continue to benefit from this. Distributions from VYM are quarterly. This fund owns stocks characterized by high dividend yields – consider it the companion to the VDY Canadian fund. VYM owns roughly similar allocations to financials, healthcare stocks, consumer goods, industrials and technology; other sectors are in less allocations.
With almost a whopping $30 billion in assets under management this fund is arguably one of the giants to own for income and growth. 10-year fund returns are a very generous 10.22%.
Image from Vanguard.
With over $36 billion in assets under management this fund is monster! With lower yield you can probably expect higher capital appreciation over time – and this has delivered returning almost 10% over the last ten years. Compare that with another popular, ultra low-cost, total-return Vanguard ETF like VTI (that holds 3,600+ U.S. stocks; MER = 0.04%) and it provides comparable returns (10-year VTI returns are 10.33%).
Image from Vanguard.
While this iShares fund doesn’t have the same established history as the Vanguard products above, this doesn’t mean this fund should not be a consideration for your income and growth-oriented portfolio given its low-cost, diversification, and ability to track 400+ U.S. equities with a history of growing their dividends. As the U.S. market bullies ahead, this fund should deliver along with it – it has returned north of 12% over the last three years.
Image from iShares.
Another ultra-low fee fund, HDV doesn’t quite have the diversification that other funds have in my top U.S. dividend ETF list (with only 75 holdings) but that doesn’t mean this product won’t deliver both income and appreciation to your portfolio. Investors looking for 3%+ steady yield and near double-digit long-term returns don’t need to look beyond this fund that has $6 billion in assets under management. Not surprisingly to deliver one of the higher distribution yields in its peer group you’ll find the major U.S. telco stocks and healthcare stocks in the fund’s top-10 holdings.
Image from iShares.
Vanguard and iShares companies might be more top of mind for many investors in terms of brand-name ETF recognition, but don’t immediately look past this one. This fund sports a killer low-fee, sector weights are modestly balanced and recent returns have been as good (if not better) as any fund in the peer group. No wonder there are $8 billion in assets under management now.
Image from Schwab.
A relative newcomer, this product has delivered solid returns since inception (close to 14%) with some impressive yield – shadowing the index that is designed to measure the performance of the top 80 dividend-paying securities listed in the S&P 500 Index. I typically don’t invest in any fund product without a three year history (or more); there are less than $700 million in assets at the time of this post.
Image from State Street.
The following funds seem to be good products (I don’t own any below) but they didn’t make my cut because I believe their fund fees are too high and/or there are better (see above) alternatives as an income investor for more diversification.
This is one of the only ETFs I know of that focuses on U.S. stocks that have raised their dividends for at least 25 consecutive years. Due to this criteria the diversification is therefore small in comparison to other dividend ETFs, 53 holdings. MER around 0.35%.
This product invests in 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility. The fund is rebalanced and reconstituted semi-annually, in January and July. To pay for that rebalancing act you’re going to pay higher fees than other funds which might be more passive. MER = 0.30%.
History tells us, dividend-paying companies have historically outperformed their non-dividend paying rivals. Will history prove to be the new norm going forward? I don’t know. I do know that, as an investor, owning many Canadian and some U.S. dividend stocks makes my portfolio, generally speaking less volatile. It also helps that such stocks and some of these U.S.-listed ETFs above that pay modest distributions – a huge benefit for anyone looking for capital protection (you can live off dividends to some degree) and potentially ride out the next bear market. Those days are coming folks. Again, when stocks will bottom out – I don’t know!
No doubt I’ve missed a few candidates.
There are also a number of Canadian-listed U.S. dividend ETFs to consider (BMO’s ZDY comes to mind) but I believe this list is plenty good enough to start your U.S.-listed ETF research. As always, when unsure about any products that fit within your financial plan, please consult a financial professional before making any major investment decisions.
In the coming weeks to wrap up this series I hope to post some of my favourite international dividend ETFs for your portfolio. Thanks for reading.
What are your top U.S. dividend ETFs? Do you own any Canadian-listed U.S. dividend ETFs or just broad market ETFs instead? If so, which ones and why?
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