Back to top

Image: Shutterstock

Guide to High Dividend Paying ETFs

Read MoreHide Full Article

The hunt for dividend in the equity market is always on irrespective of how it is behaving. After all, who doesn’t like a steady stream of current income along with capital gains? And if investors are mired in a web of equity market uncertainty, global growth worries and geopolitical crisis, the lure for dividend investing will increase.

Investors should note that not all dividend stocks serve the same purpose. While the high-yield ones are known for offering hefty current income, stocks with dividend growth point to quality investing — a pre-requisite to making money in this volatile environment. Notably, the year 2020 was a bit difficult for dividend investing due to the corporate cash crunch and announcement of dividend cuts.

But things have been changing from the year 2021. S&P Dow Jones Indices announced in early January that indicated dividend gain in 2021 was $69.8 billion compared to 2020's decline of $40.8 billion. U.S. common dividend increases were $78.6 billion in 2021, up 89.7% year over year, as decreases in dividends fell 89.3% to $8.8 billion in 2021 from the massive $82.2 billion in 2020.

Meanwhile, the rise in interest rates is now common globally. Vaccine rollout, resulting in risk-on sentiments, and higher inflationary expectations, thanks to supply chain woes, led to the rise in rates. A hawkish Fed in 2022 is also responsible for the rise, which has cast a pall on Wall Street. U.S. Treasury yields soared to this year’s high of 2.05% on Feb 15. Inflation in Euro zone is no different, having hit a new record high. No wonder, central banks in developed economies have been tightening policies.

Why to Pick High-Dividend Securities

As economies are likely to rebound this year on widespread vaccination and inflation rates are likely to pace up, bond yields should soar further. In such a scenario, investors may be interested in equities that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the ways to ride out the turbulent times.

Even if the stock or the fund falls, higher current income would go a long way in protecting investors’ total returns. After all, high-dividend ETFs provide investors avenues to make up for capital losses, if that happens at all.

We thus have zeroed in on some high-dividend ETFs.

Global X SuperDividend ETF (SDIV - Free Report)

The underlying Solactive Global SuperDividend Index tracks the performance of 100 equally weighted companies that rank among the highest dividend-yielding equity securities in the world. The index provider applies certain dividend stability filters. Financials (29%) and Real Estate (26.3%) are the top two sectors of the fund. The 101-stock ETF charges 59 bps in fees and yields 9.12% annually.

SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report)

The underlying S&P 500 High Dividend Index is designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield. Financials (17.83%), Utilities (16.99%), Real Estate (13.38%) and Energy (13.05%) have a double-digit weight in the fund. The fund yields 7 bps in fees and yields 3.62% annually.

Vanguard High Dividend Yield ETF (VYM - Free Report)

The underlying FTSE High Dividend Yield Index which consists of common stocks of companies that generally pay higher-than-average dividends. The fund charges 6 bps in fees and yields 2.81% annually.  Johnson & Johnson (3.23%), JPMorgan Chase & Co. (3.11%) and Home Depot (2.78%) are the top three stocks of the fund.

Global X SuperDividend U.S. ETF (DIV - Free Report)  

The underlying INDXX SuperDividend U.S. Low Volatility Index tracks the performance of 50 equally weighted common stocks, MLPs & REITs that rank among the highest dividend-yielding equity securities in the United States. The fund yields 5.32% annually and charges 45 bps in fees. Bp Midstream Partners (2.77%), Spartannash (2.70%) and Public Storage (2.67%) hold top three positions in the fund DIV.

iShares Core High Dividend ETF (HDV - Free Report) )

The underlying Morningstar Dividend Yield Focus Index offers exposure to high-quality U.S. domiciled companies that have had strong financial health and the ability to sustain above-average dividend payouts. The fund is heavy on the healthcare sector (24.07%), followed by energy (19.53%), consumer staples (18.75%). The fund HDV charges 8 bps in fees and yields 3.42% annually.

Published in