If you look at just about any list of the top dividend ETFs available, they almost always skew towards the biggest and most well-known names. My dividend ETF rankings, which focus on things, such as low fees, liquidity, tradeability and diversification, follow a similar pattern. The biggest ETF providers, including BlackRock, State Street and Vanguard, dominate the list.
According to ETF Action, there are nearly 140 ETFs out there that implement some type of dividend focus in their strategy. With the 10 largest dividend ETFs accounting for roughly 75% of the total assets invested within the group and sucking most of the oxygen out of the room, there are a number of solid dividend ETFs available to investors that aren't getting a whole lot of attention.
We're going to attempt to rectify that problem.
Whether it's through their strategies, low fees are pure potential, these ETFs deserve a little more of the spotlight than they're getting. For the purposes of defining "under the radar", I'm only going to consider funds with less than $1 billion in assets. It's a bit of an arbitrary cutoff line, but it eliminates all of the big well-known dividend ETFs from consideration and allows us to focus just on the smaller guys trying to breakthrough. Even better, 9 of the 10 ETFs on this list have either matched or beaten the S&P 500 year-to-date!
Here are my 10 dividend ETFs that should at least be on your radar.
WisdomTree U.S. Total Dividend ETF (DTD)
- AUM (in millions): $929
- Expense ratio: 0.28%
- YTD return (as of 6/25/21): 13.86%
I've always appreciated DTD because, in a world where most dividend ETFs focus on growers or high yielders or use some combination of factors or themes, it's objective is simple. It provides broad exposure to the U.S. dividend-paying stock universe with no real frills or tilts.
DTD can invest in small-, mid- or large-caps stocks and is dividend-weighted. This means companies with higher aggregate cash dividends paid get a larger weighting in the fund's index. It ends up looking a lot like a market cap-weighted fund, but has larger allocations to bigger dividend payers, such as Altria (MO), Philip Morris (PM) and Verizon (VZ).
JPMorgan U.S. Dividend ETF (JDIV)
- AUM (in millions): $37
- Expense ratio: 0.12%
- YTD return (as of 6/25/21): 21.87%
I really haven't understood why JDIV hasn't become bigger. It's dirt cheap, which always tends to attract attention in the ETF world. It's got a sensible objective and an above average track record within its category. It comes from a well-known ETF issuer. Yet it's only managed $37 million in assets since it's late-2017 inception.
JDIV utilizes a rules-based approach that adjusts sector weights based on volatility and yield and selects the highest yielding stocks. Think of it as trying to strike a balance between low risk and high risk, but ultimately producing a product that generates an above average yield. Its current 2.8% yield is more than double that of the S&P 500.
AAM S&P 500 High Dividend Value ETF (SPDV)
- AUM (in millions): $41
- Expense ratio: 0.29%
- YTD return (as of 6/25/21): 25.75%
AAM offers a trio of high dividend value ETFs - this one and two others focused on developed markets and emerging markets, respectively. As the name suggests, SPDV focuses primarily on two metrics - the dividend yield and free cash flow yield, the latter helping to measure balance sheet quality and distribution sustainability. From there, it identifies 5 stocks within each of the 11 GICS sectors to produce a diversified portfolio.
SPDV has the additional advantage of paying dividends on a monthly, not quarterly, basis, so it may be especially attractive to investors living off of portfolio income. It has a TTM dividend yield of more than 3%.
FlexShares Quality Dividend Dynamic Index ETF (QDYN)
- AUM (in millions): $21
- Expense ratio: 0.37%
- YTD return (as of 6/25/21): 17.16%
I'm a fan of several of the FlexShares dividend ETFs that implement their dividend quality score (DQS) as part of their criteria, which focuses on generating sustainable income and avoiding dividend traps and sector biases. The DQS looks at management efficiency, profitability and cash flows to develop an overall score, while automatically eliminating those in the lowest quintile. Qualifying components get optimized to ensure balanced security, sector and industry exposures.
QDYN has a notable large-cap value tilt. It has overweighted positions in tech, energy and materials, while underweighting communication services and utilities.
Siren DIVCON Leaders Dividend ETF (LEAD)
- AUM (in millions): $44
- Expense ratio: 0.43%
- YTD return (as of 6/25/21): 12.58%
Most dividend growth focused ETFs look for stocks with long-term histories of raising their dividends. Not LEAD. It targets companies with the greatest likelihood or making dividend increases in the future according to the DIVCON Dividend Health Scoring system utilized by the fund's index.
The DIVCON Dividend Health Scoring system begins by looking at large-caps that paid an ordinary dividend and announced a future dividend payment over the past 12 months. It looks at a number of quantitative factors in order to predict dividend changes to produce a company’s DIVCON Score, humorously labeled DIVCON 1, DIVCON 2, DIVCON 3, DIVCON 4 and DIVCON 5. All DIVCON 5 stocks or the 30 stocks with the highest DIVCON scores, whichever is greater, are selected for inclusion in the index.
VictoryShares U.S. Equity Income Enhanced Volatility Weighted ETF (CDC)
- AUM (in millions): $914
- Expense ratio: 0.37%
- YTD return (as of 6/25/21): 21.83%
CDC is interesting because it's not just your standard dividend ETF. The core strategy is high yield/low volatility. It starts with a generic large-cap universe featuring companies that have positive earnings for 4 consecutive quarters. It pulls out the 100 highest yielders from this group and overweights the components with the lowest volatility.
That unique part of CDC is that it will rotate out of equities in times of significant market declines. If stocks fall more than 8% from its all-time high, it will rotate 75% of assets into cash. Depending on the depth of the decline, CDC will begin adding back to its stock position once prices move back above a predetermined level. Essentially, it's a bit of a buy low strategy on top of a dividend strategy.
Fidelity Dividend ETF For Rising Rates (FDRR)
- AUM (in millions): $469
- Expense ratio: 0.29%
- YTD return (as of 6/25/21): 16.02%
Here's an ETF that might be of interest in the current environment. FDRR targets large-cap and mid-cap dividend-paying companies that 1) are expected to continue to pay and grow their dividends and 2) have a positive correlation of returns to increasing 10-year U.S. Treasury yields.
Stocks are ranked within each sector and given a composite score based on four fundamental characteristics: high dividend yield, low dividend payout ratio, high dividend growth, and positive correlation of returns to increasing 10-year U.S. Treasury yields. Stocks with the highest composite scores within each sector are identified for inclusion in the index.
As one might expect, the fund is overweight in cyclicals and defensives. The highest industry exposures are to banks, pharmaceuticals, media and consumer goods companies, but the heaviest allocation still belongs to the tech sector.
RiverFront Dynamic U.S. Dividend Advantage ETF (RFDA)
- AUM (in millions): $125
- Expense ratio: 0.52%
- YTD return (as of 6/25/21): 14.11%
RFDA is actively-managed and could be best described as a multi-factor ETF. It looks for stocks that exhibit several core attributes, such as value, quality and momentum. Some of the metrics it will use to determine this are the price-to-book value of a security when determining value, a company’s cash as a percentage of the company’s market cap when determining quality and a security’s three-month relative price change when determining momentum. Security selection will also emphasize stocks that are paying an above average divided.
RFDA is another fund that pays out dividends on a monthly basis and offers a current yield of 1.6%.
ALPS REIT Dividend Dogs ETF (RDOG)
- AUM (in millions): $31
- Expense ratio: 0.35%
- YTD return (as of 6/25/21): 21.61%
Most investors are familiar with the dividend dog strategy. It's where a fund or index targets the highest yielding stocks within the group, often looking to either capture an above average yield or take advantage of a value opportunity. The ALPS Sector Dividend Dogs ETF (SDOG) is probably the best-known ETF using this strategy, but RDOG does the same thing within the high-yielding REIT sector.
RDOG targets the five highest yielding REITs in nine REIT segments. It includes a technology REIT segment to help capture the strong growth in wireless towers and data centers, which can also act as a defensive attribute to the fund, and excludes the mortgage REIT segment to avoid REITs most sensitive to interest rates and credit spreads.
As of now, it yields 4.4%.
ProShares Russell 2000 Dividend Growers ETF (SMDV)
- AUM (in millions): $898
- Expense ratio: 0.41%
- YTD return (as of 6/25/21): 13.88%
This is the small-cap version of ProShares' popular Dividend Aristocrats ETF (NOBL). In the small-cap universe, there aren't nearly as many companies meeting the 25-year consecutive dividend growth requirement that typically qualifies a company as an aristocrat, so it requires a comparatively more modest 10-year growth streak.
Like other dividend growth funds, the yields aren't terribly high, just 1.9% right now, but the ability to capture small-cap growth potential while getting a consistent dividend pay raise is attractive.