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With rate cuts in the cards and lower bond yields, the appeal for dividend ETFs has been on a rise this year on investors’ drive for juicy yields.
Though these stocks do not offer much price appreciation in a rising stock market, they offer a steady stream of income along with the potential of capital gains. Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices.
Dividend paying securities are the major sources of consistent income for investors to create wealth when returns from the equity market are at risk. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
Further, research shows that dividend stocks often outperform their non-dividend paying counterparts over longer periods. According to Chicago-based Greenrock Research, a portfolio with the top 20% S&P 500 companies ranked by dividend yield and weighted by market capitalization, outperformed the overall S&P 500 by 2.13 percentage points annually from 1995 to 2018 (read: 5 Overlooked Energy ETFs Yielding More Than XLE).
Stocks having a history of dividend growth lead to a healthy portfolio when compared to simple dividend paying out stocks or those with high yields. Notably, the S&P 500 Dividend Aristocrats Index, which includes members of the S&P 500 Index that have raised their dividends for at least 25 consecutive years, has delivered a total return of almost 300% since inception in 2005versus 221% for the S&P 500 and 168% for the S&P 500 Value Index. Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stocks.
That said, we highlight some dividend ETFs that have become immensely popular this year and have been hitting all-time highs. These products seem to be compelling picks given the demand for dividend investing:
iShares Core Dividend Growth ETF (DGRO - Free Report) - New High Price: $39.33
This fund provides exposure to companies having a history of consistently hiking dividends by tracking the Morningstar US Dividend Growth Index. Holding 479 stocks in its basket, the fund has AUM of $8.1 billion and trades in good volumes of about 1.3 million shares. It charges 8 bps in fess per year and has an annual dividend yield of 2.22%. The ETF has gained about 19.8% in the year-to-date time frame (read: Dividend Growth ETF Hits New 52-Week High).
VictoryShares Dividend Accelerator ETF (VSDA - Free Report) - New High Price: $34.21
This ETF offers exposure to large-cap U.S. stocks, that feature not only a history of increasing dividends, but which also possess the highest probability of future dividend growth. It follows the Nasdaq Victory Dividend Accelerator Index, holding 75 securities in its basket. VSDA has accumulated $126.3 million in its asset base and trades in lower volume of 29,000 shares a day on average. It charges 35 bps in annual fees and yields 1.35% annually. The product has surged 24.6% so far this year (read: Dividend Accelerator ETF Hits New 52-Week High).
SPDR S&P Dividend ETF (SDY - Free Report) - New High Price: $102.83
This is one of the popular and liquid ETFs in the dividend space with AUM of $19 billion and average daily volume of 608,000 shares. This fund provides a well-diversified exposure to 112 U.S. stocks that have been consistently increasing their dividends every year for at least 20 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. The fund charges 35 bps in fees per year and yields 2.36% in annual dividend. The ETF has returned about 16.1% so far this year.
Vanguard Dividend Appreciation ETF (VIG - Free Report) - New High Price: $119.48
This is the largest and most popular ETF in the dividend space with AUM of $37.25 billion and average daily volume of about 847,000 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of growing dividends year over year. The ETF charges 6 bps in annual fees while its dividend yield comes at 1.73%. It has climbed 22.9% in the year-to-date time frame.
Schwab U.S. Dividend Equity ETF (SCHD - Free Report) - New High Price: $55.11
With AUM of $10 billion, this product offers exposure to 114 high-dividend yielding U.S. companies that have a track of consistent dividend payouts supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. It charges 6 bps in annual fees and trades in solid volume of about 808,000 shares a day. It has a dividend yield of 2.81% and has added 18.9% so far this year (read: ETFs in Focus on IBM's 4th Straight Quarter of Revenue Drop).
WisdomTree U.S. LargeCap Dividend Fund (DLN - Free Report) - New High Price: $99.54
This ETF tracks the WisdomTree LargeCap Dividend Index, which measures the performance of the large-capitalization segment of the U.S. dividend-paying market. The fund has been able to manage assets of $2.1 billion and trades in good volume of 63,000 shares a day on average. Expense ratio came in at 0.28%. Holding 298 stocks in its basket, the product has an annual dividend yield of 2.60% and has lost 19.5% so far this year.
Invesco Dividend Achievers ETF (PFM - Free Report) - New High Price: $29.54
With $305.2 million, this fund offers exposure to 261 stocks that have increased their annual dividend for 10 or more consecutive fiscal years. It has expense ratio of 0.55% and average daily volume of 27,000 shares. PFM has gained 20.6% in the year-to-date timeframe.
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Red Hot Dividend ETFs of 2019
With rate cuts in the cards and lower bond yields, the appeal for dividend ETFs has been on a rise this year on investors’ drive for juicy yields.
Though these stocks do not offer much price appreciation in a rising stock market, they offer a steady stream of income along with the potential of capital gains. Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices.
Dividend paying securities are the major sources of consistent income for investors to create wealth when returns from the equity market are at risk. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
Further, research shows that dividend stocks often outperform their non-dividend paying counterparts over longer periods. According to Chicago-based Greenrock Research, a portfolio with the top 20% S&P 500 companies ranked by dividend yield and weighted by market capitalization, outperformed the overall S&P 500 by 2.13 percentage points annually from 1995 to 2018 (read: 5 Overlooked Energy ETFs Yielding More Than XLE).
Stocks having a history of dividend growth lead to a healthy portfolio when compared to simple dividend paying out stocks or those with high yields. Notably, the S&P 500 Dividend Aristocrats Index, which includes members of the S&P 500 Index that have raised their dividends for at least 25 consecutive years, has delivered a total return of almost 300% since inception in 2005versus 221% for the S&P 500 and 168% for the S&P 500 Value Index. Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stocks.
That said, we highlight some dividend ETFs that have become immensely popular this year and have been hitting all-time highs. These products seem to be compelling picks given the demand for dividend investing:
iShares Core Dividend Growth ETF (DGRO - Free Report) - New High Price: $39.33
This fund provides exposure to companies having a history of consistently hiking dividends by tracking the Morningstar US Dividend Growth Index. Holding 479 stocks in its basket, the fund has AUM of $8.1 billion and trades in good volumes of about 1.3 million shares. It charges 8 bps in fess per year and has an annual dividend yield of 2.22%. The ETF has gained about 19.8% in the year-to-date time frame (read: Dividend Growth ETF Hits New 52-Week High).
VictoryShares Dividend Accelerator ETF (VSDA - Free Report) - New High Price: $34.21
This ETF offers exposure to large-cap U.S. stocks, that feature not only a history of increasing dividends, but which also possess the highest probability of future dividend growth. It follows the Nasdaq Victory Dividend Accelerator Index, holding 75 securities in its basket. VSDA has accumulated $126.3 million in its asset base and trades in lower volume of 29,000 shares a day on average. It charges 35 bps in annual fees and yields 1.35% annually. The product has surged 24.6% so far this year (read: Dividend Accelerator ETF Hits New 52-Week High).
SPDR S&P Dividend ETF (SDY - Free Report) - New High Price: $102.83
This is one of the popular and liquid ETFs in the dividend space with AUM of $19 billion and average daily volume of 608,000 shares. This fund provides a well-diversified exposure to 112 U.S. stocks that have been consistently increasing their dividends every year for at least 20 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. The fund charges 35 bps in fees per year and yields 2.36% in annual dividend. The ETF has returned about 16.1% so far this year.
Vanguard Dividend Appreciation ETF (VIG - Free Report) - New High Price: $119.48
This is the largest and most popular ETF in the dividend space with AUM of $37.25 billion and average daily volume of about 847,000 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of growing dividends year over year. The ETF charges 6 bps in annual fees while its dividend yield comes at 1.73%. It has climbed 22.9% in the year-to-date time frame.
Schwab U.S. Dividend Equity ETF (SCHD - Free Report) - New High Price: $55.11
With AUM of $10 billion, this product offers exposure to 114 high-dividend yielding U.S. companies that have a track of consistent dividend payouts supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. It charges 6 bps in annual fees and trades in solid volume of about 808,000 shares a day. It has a dividend yield of 2.81% and has added 18.9% so far this year (read: ETFs in Focus on IBM's 4th Straight Quarter of Revenue Drop).
WisdomTree U.S. LargeCap Dividend Fund (DLN - Free Report) - New High Price: $99.54
This ETF tracks the WisdomTree LargeCap Dividend Index, which measures the performance of the large-capitalization segment of the U.S. dividend-paying market. The fund has been able to manage assets of $2.1 billion and trades in good volume of 63,000 shares a day on average. Expense ratio came in at 0.28%. Holding 298 stocks in its basket, the product has an annual dividend yield of 2.60% and has lost 19.5% so far this year.
Invesco Dividend Achievers ETF (PFM - Free Report) - New High Price: $29.54
With $305.2 million, this fund offers exposure to 261 stocks that have increased their annual dividend for 10 or more consecutive fiscal years. It has expense ratio of 0.55% and average daily volume of 27,000 shares. PFM has gained 20.6% in the year-to-date timeframe.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>