Top U.S. Dividend ETFs
What makes a great Exchange Traded Fund (ETF)?
Better questions, what are the top U.S. dividend ETFs to own?
Welcome to the answer right here!
Wait…what is an ETF and what are the benefits of owning them?
Keep reading – but make sure you check out this post where I profiled top Canadian dividend ETFs to consider for your portfolio.
- 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 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.
Top U.S. Dividend ETFs
All data and information is current at the time of this post – quick comparison format:
|ETF Symbol||MER||# of holdings||Payment Frequency||5-Year Return||10-Year Return|
Top U.S. Dividend ETFs Overview
Here is a quick primer about each fund.
1. Vanguard U.S. High Dividend Yield ETF (VYM)
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.
Disclosure – I used to own this fund until 2020 but sold in favour VTI for long-term growth.
Image from Vanguard.
2. Vanguard Dividend Appreciation ETF (VIG)
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.
Image from Vanguard.
3. iShares Core Dividend Growth ETF (DGRO)
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.
Image from iShares.
4. iShares Core High Dividend ETF (HDV)
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.
Image from iShares.
5. Schwab U.S. Dividend Equity ETF (SCHD)
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.
Image from Schwab.
6. State Street SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
A relative newcomer, this product has delivered solid returns since inception 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.
Image from State Street.
7. ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
More of the honourable mention variety – this ETF 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, it usually holds less that 70 holdings.
Dividend ETFs vs. other ETFs?
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.
As a wrap to this series, check out the Top International Dividend ETFs to own.
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?
More ETF reading:
How many ETFs should you own anyhow?
How can I diversify my TFSA using ETFs?
Good list Mark. There are others but nothing else with low costs that I am aware of. Always good to be meeting goals!
SMS, pairing in the manner suggested is exactly what I do for US and internationally. Its simple and covers the entire market with a tilt or lift to on yields. I am looking for steady income and ultimately total return.
Hopefully I’ll have a enough income to do the same in the coming 10 years RBull – have a blend of stocks and low-cost ETFs that are bulletproof. We shall see!
You will. Have enough income that is.
Bulletproof…that would be nice but I’m not going that far with my expectations.
Thanks. We did! Moving on now!
Another good strategy is to pair a dividend ETF with a broad based one. I have heard of investors doing this. Thanks for providing such a comprehensive list to choose from. I have owned DGRO in the past. I own no dividend ETFs.
I’ve heard of that as well. re: in the U.S. – pairing a broad market ETF like VTI with a dividend ETF like HDV or VYM. I don’t know if I will do that but time will tell. So far, so good for us I think – as long as we are meeting our goals.
Thanks for sharing your US & CA top choices for 2018. I am also interested as to what criteria and how you decide on what ETFs get included in your portfolio(s), and similarly, what criteria and how you decide on what ETFs should be deleted from your portfolios? ETFs, like dividends, lend themselves to longer-term buy and holds, but there are times when changes should be made to preserve capital, so as to ensure a reasonable “total return” (i.e., both capital & dividends). TIA for your insights!
I focused on a few criteria, as I did for my CDN picks.
1) low-costs. Why? High fund costs kill portfolio values over time.
2) sector diversification. ETFs that were too concentrated in any one sector, IMO, defeat the purpose of an ETF. So, I tried to find ETFs that spanned multiple sectors adequately.
3) history. Why? While new entrants are fine I’m personally biased to more “plain vanilla” funds or easy-to-understand dividend ETFs because their structure and simple long-term approach should produce better long-term returns.
Certainly total return matters (i.e., interest + dividends + capital gains) and I believe some of these funds do quite well at that.