10 Top Holdings Of High Performing Dividend ETFs

Ten dividend growth stocks that helped several dividend ETFs deliver the highest 5-year returns.
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Occasionally, I compile a list of the top holdings of dividend ETFs. I find the exercise insightful, as it helps to identify dividend growth stocks for further research and possible investment.

This article presents dividend growth stocks that are top holdings of at least three of the best-performing dividend ETFs over the past five years. By top holdings, I mean the top ten stocks in each dividend ETF when ranked by percentage of assets under management.

Dividend growth stocks are stocks with a history of consistently increasing annual dividends. I like investing in dividend growth stocks because they provide a higher baseline of income year after year. A carefully compiled portfolio of dividend growth stocks can practically guarantee annual raises and hedge against inflation.

Dividend Radar tracks dividend growth stocks trading on U.S. exchanges with streaks of annual dividend increases of at least five years. Updated and published every Friday, Dividend Radar is a free resource for investors interested in dividend growth investing.

Approach

Issuers of ETFs provide data about the holdings of each ETF, including the percentage of assets under management allocated to each holding. I collected these data for established dividend-paying ETFs and compiled a spreadsheet with tickers of the top ten holdings in each ETF, along with the relative weight of each holding.

For this article, I analyzed dividend ETFs that invest in US equities and real estate stocks. I limited my analysis to the ten dividend ETFs with the highest 5-year returns:

Dividend ETFs with the highest 5-year returns (Source: ETFdb. Data extracted on 28 May 2020)

Dividend ETFs with the highest 5-year returns (Source: ETFdb. Data extracted on 28 May 2020)

With ten dividend ETFs and ten tickers per ETF, there are 100 tickers. But some tickers appear in multiple ETFs, so I counted only 60 unique tickers.

Top Holdings by Frequency

Here are the nine tickers that appear in at least three of the ten dividend ETFs:

Frequency of each ticker in the top ten holdings of the Dividend ETFs.

Frequency of each ticker in the top ten holdings of the Dividend ETFs.

Microsoft Corporation (MSFT) and Apple Inc (AAPL) are among the top ten holdings of six of the ten dividend ETFs.

Top Holdings by Assets

I think it is informative to use the size of each holding to find the top holdings of the dividend ETFs.

The table of dividend ETFs presented earlier includes a column for the assets under management [AUM] of each dividend ETF. So it is simple to determine the size of each holding, as I also collected the percentage of AUM allocated to each holding.

Below are the top ten tickers by assets and the total AUM allocated to each ticker:

Total assets of each ticker in the top ten holdings of the Dividend ETFs.

Total assets of each ticker in the top ten holdings of the Dividend ETFs.

The total AUM allocated to MSFT and AAPL dominate the list, perhaps not surprising given the performance of these stocks over the past several years.

Note that two tickers in the frequency-based table - Cisco (CSCO) and Pfizer (PFE) - are not in the top ten holdings based on total AUM, and three tickers were added - Walmart (WMT), United Healthcare (UNH) and Visa (V).

Performance Analysis

We can look at the performance of the top holdings using an analysis tool available at Finbox.com. Below is a chart showing the relative performance of an equal-weighted portfolio over the past five years:

Performance of top holdings over the past five years relative to the S&P 500. (Source: Finbox.com)

Performance of top holdings over the past five years relative to the S&P 500. (Source: Finbox.com)

As a virtual portfolio, the top ten holdings would have returned about 172% over the past five years (easily outperforming the S&P 500's performance of 100%).

Key Metrics and Fair Value Estimates

Below, I present a table with key metrics of interest to dividend growth investors. The table includes a quality score according to DVK Quality Snapshots and the five quality indicators that make up that score. I also provide fair value estimates and show the discount (Disc.) or premium (Prem.) of a recent price to my fair value estimate. The last column shows the 5-year trailing total returns (including dividends) of each holding.

Key metrics and fair value estimates of the top holdings of ten high-performing Dividend ETFs.

Key metrics and fair value estimates of the top holdings of ten high-performing Dividend ETFs.

The stocks I own in my DivGro portfolio are highlighted in the ticker column.

Let's look at each of these stocks in turn.

Microsoft Corporation (MSFT)

Founded in 1975 and based in Redmond, Washington, MSFT is a technology company with worldwide operations. The company’s products include operating systems, cross-device productivity applications, server applications, productivity and business solutions applications, software development tools, video games, and online advertising. MSFT also designs, manufactures, and sells several hardware devices.

Market Cap: 1,850.58 B
Sector: Information Technology
P/E: 31.83
Yield (TTM Q1 2021): 0.91%
5Y Average Yield: 1.54%
Annualized Dividend: $2.240
Basic EPS: 7.41
Basic Payout Ratio: 29%
Beta: 0.79

Screen Shot 2021-06-07 at 8.06.22 AM

MSFT outperformed the S&P 500 over the past 10 years (+1,183% vs +293%).

Apple Inc. (AAPL)

Headquartered in Cupertino, California, AAPL designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players. The company also sells various related software, services, peripherals, networking solutions, and third-party digital content and applications. AAPL was founded in 1977.

Market Cap: 2,061.59 B
Sector: Information Technology
P/E: 27.00
Yield (TTM Q1 2021): 0.68%
5Y Average Yield: 1.31%
Annualized Dividend: $0.880
Basic EPS: 4.49
Basic Payout Ratio: 18%
Beta: 1.21

Screen Shot 2021-06-07 at 8.08.18 AM

AAPL outperformed the S&P 500 over the past 10 years (+1,071% vs +293%).

JPMorgan Chase & Co. (JPM)

JPM is a financial holding company providing investment banking, financial services, commercial banking, financial transaction processing, and asset management. With assets of about $2.6 trillion, the company serves many prominent corporate, institutional, and government clients worldwide. JPM was founded in 1799 and is headquartered in New York, New York.

Market Cap: 504.20B
Sector: Financials
P/E: 12.06
Yield (TTM Q1 2021): 2.37%
5Y Average Yield: 2.58%
Annualized Dividend: $3.60
Basic EPS: 12.62
Basic Payout Ratio: 29%
Beta: 1.19

Screen Shot 2021-06-07 at 8.09.59 AM

JPM outperformed the S&P 500 over the past ten years (+428% vs. +293%).

Johnson & Johnson (JNJ)

Founded in 1886 and based in New Brunswick, New Jersey, JNJ has grown into one of the largest companies in the world. The company is a leader in the pharmaceutical, medical device, and consumer products industries. JNJ distributes its products to the general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals.

Market Cap: 437.25 B
Sector: Health Care
P/E: 28.36.65
Yield (TTM Q1 2021): 2.46%
5Y Average Yield: 2.63%
Annualized Dividend: $4.24
Basic EPS: 5.74
Basic Payout Ratio: 70%
Beta: 0.71

Screen Shot 2021-06-07 at 8.11.52 AM

JNJ underperformed the S&P 500 over the past ten years (+235% vs. +293%).

The Home Depot, Inc. (HD)

Founded in 1978 and based in Atlanta, Georgia, HD is a home improvement retailer that sells an assortment of building materials, home improvement products, and lawn and garden products. HD provides installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me, and professional customers.

Market Cap: 331.13 B
Sector: Consumer Discretionary
P/E: 23.53
Yield (TTM Q1 2021): 2.02%
5Y Average Yield: 2.29%
Annualized Dividend: $6.60
Basic EPS: 13.76
Basic Payout Ratio: 45%
Beta: 1.05

Screen Shot 2021-06-07 at 8.16.03 AM

HD outperformed the S&P 500 over the past 10 years (+1,036% vs +293%).

The Coca-Cola Company (KO)

KO is the world's largest beverage company and the leading producer and marketer of soft drinks. Along with Coca-Cola, recognized as the world's best-known brand, The Coca-Cola Company markets four of the world's top five soft drink brands, including diet Coke, Fanta, and Sprite. KO was founded in 1886 and is headquartered in Atlanta, Georgia.

Market Cap: 239.90 B
Sector: Consumer Staples
P/E: 31.28
Yield (TTM Q1 2021): 3.14%
5Y Average Yield: 3.39%
Annualized Dividend: $1.68
Basic EPS: 1.68
Basic Payout Ratio: 98%
Beta: 0.61

Screen Shot 2021-06-07 at 8.17.49 AM

KO underperformed the S&P 500 over the past ten years (+132% vs. +293%).

The Procter & Gamble Company (PG)

Founded by William Procter and James Gamble, PG is focused on providing branded consumer packaged goods in more than 180 countries. PG has five reportable segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care. The company was incorporated in Ohio in 1905 and is headquartered in Cincinnati, Ohio.

Market Cap: 332.59 B
Sector: Consumer Staples
P/E: 24.06
Yield (TTM Q1 2021): 2.34%
5Y Average Yield: 2.86%
Annualized Dividend: $3.479
Basic EPS: 5.63
Basic Payout Ratio: 56%
Beta: 0.41

Screen Shot 2021-06-07 at 8.21.22 AM

PG underperformed the S&P 500 over the past ten years (+182% vs. +293%).

Walmart Inc. (WMT)

WMT is the world's largest retailer and the biggest private employer in the world. Based in Bentonville, Arkansas, and founded in 1962, the company is a multinational retailer with more than 11,000 stores worldwide. Additionally, the company operates e-commerce websites in many countries. WMT operates through three segments: Walmart U.S., Walmart International, and Sam's Club.

Market Cap: 398.39 B
Sector: Consumer Staples
P/E: 32.29
Yield (TTM Q1 2021): 1.60%
5Y Average Yield: 2.15%
Annualized Dividend: $2.20
Basic EPS: 4.33
Basic Payout Ratio: 50%
Beta: 0.47

Screen Shot 2021-06-07 at 8.23.44 AM

WMT underperformed the S&P 500 over the past ten years (+234% vs. +293%).

UnitedHealth Group Incorporated (UNH)

Founded in 1974 and based in Minnetonka, Minnesota, UNH is a diversified health and well-being company with core clinical expertise, advanced technology, and data and health information. The company provides medical benefits to customers in the United States and more than 125 other countries.

Market Cap: 384.99 B
Sector: Health Care
P/E: 20.89
Yield (TTM Q1 2021): 1.35%
5Y Average Yield: 1.50%
Annualized Dividend: $5.00
Basic EPS: 17.81
Basic Payout Ratio: 28%
Beta: 0.78

Screen Shot 2021-06-07 at 8.26.05 AM

UNH outperformed the S&P 500 over the past ten years (+871% vs. +293%).

Visa Inc. (V)

Headquartered in San Francisco, California, V operates as a payments technology company worldwide. The company facilitates commerce by transferring value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. V provides its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brands.

Market Cap: 486.51 B
Sector: Information Technology
P/E: 43.67
Yield (TTM Q1 2021): 0.59%
5Y Average Yield: 0.64%
Annualized Dividend: $1.28
Basic EPS: 4.85
Basic Payout Ratio: 26%
Beta: 1.00

Screen Shot 2021-06-07 at 8.28.19 AM

V outperformed the S&P 500 over the past 10 years (+1,138% vs. +293%).

Concluding Remarks

This article analyzed the highest-performing dividend ETFs over the past five years to find ten dividend growth stocks with the highest AUM. I own all but one of these stocks (WMT) in my DivGro portfolio. These are high-quality dividend growth stocks based on quality scores from DVK Quality Snapshots. Unfortunately, all ten stocks are trading at premium valuations.

My advice would be to wait for these stocks to drop to my fair value estimates before considering an investment.

As always, I advise readers to do their due diligence before investing.

Thanks for reading!