Investors have been almost entirely focused on tech and growth shares over the past few years, but that could be ready to change. With the U.S. economy already in the dire straits and a second wave of the coronavirus looking poised to slow future growth even further, it might be time to reconsider more conservative and defensive equity options.
Dividend stocks and ETFs certainly fit the bill, but they've been struggling along with other non-tech, non-growth segments of the market. But even though they're out of favor with investors right now doesn't make them any less attractive over the long-term.
The stats touting the benefits of investing in dividend payers is extensive. Dividend stocks tend to exhibit lower volatility and generate greater returns over time. Granted, we haven't seen that a lot recently with investors narrowly focusing in on riskier assets as well, but the long-term case is still compelling.
Thankfully, the ETF marketplace is full of great options. Whether you're looking for long-term dividend growers, high yielders or a combination of both, you have a lot of excellent choices if you want to boost your portfolio's income.
Here are 10 of the best dividend ETFs you can buy today.
Schwab U.S. Dividend Equity ETF (SCHD)
SCHD is perhaps my favorite dividend ETF due to its strict qualifying criteria that narrows down the portfolio's components to the best of the best.
This fund looks for companies with long histories of paying and raising their dividends, strong and healthy balance sheets and above average dividend yields. Its 4% dividend yield is more than twice that of the S&P 500 and it comes with Morningstar's top 5-star rating.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
As the name suggests, this fund looks first for the 75 S&P 500 components that have historically displayed the lowest level of volatility and then invests in the 50 highest yielding names within that subset.
SPHD has a great long-term track record, but it also tends to be a bit of a feast or famine option. Low volatility investing tends to be either strongly in favor or strongly out of favor, so returns can either be great or disappointing. This is definitely a buy-and-hold choice.
Vanguard Dividend Appreciation ETF (VIG)
VIG has a very simple objective. It identifies companies of all sizes with a 10+ year history of growing their dividend annually (REITs and limited partnerships are excluded) and market cap-weights those stocks that qualify.
It's a very straightforward strategy that's delivered terrific long-term results. It's been ideal for investors who like generating predictable income from their portfolios and like getting steady pay raises along the way.
iShares Core Dividend Growth ETF (DGRO)
DGRO is another top-notch dividend ETF that combines dividend growth with dividend quality.
The fund starts by looking for companies with a relatively modest 5-year minimum annual dividend growth streak. Within that universe, it looks for companies that can sustain their dividend growth histories. To do that, it looks for payout ratios of less than 75%, while eliminating the top 10% of dividend yields in order to reduce the risk of investing in companies at risk of cutting their dividends.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
If you like mature, stable cash flow generators that can keep paying and growing their dividends over and over and over again, NOBL is the dividend ETF for you.
The funds we've discussed so far require a 5-10 year dividend growth history, but NOBL requires companies to meet the "dividend aristocrat" qualification of at least 25 years of growth. These companies aren't necessarily guaranteed to keep raising their dividends indefinitely, but they often have the capability to do so. And companies with this type of history usually don't want to end their streaks!
iShares Select Dividend ETF (DVY)
DVY is another fund that targets companies with a combination of dividend growth history and strong balance sheet fundamentals. It starts with stocks that have both paid and grown their dividends over the past five years, have a minimum dividend coverage ratio in order to help ensure sustainability and have a non-negative earnings per share over the past 12 months.
DVY's expense ratio of 0.39% is often a point of contention for those choosing a dividend ETF since many alternatives are available at 0.10% or less. Prior to the past couple of years, which has seen relative performance struggle, DVY has had a strong long-term track record.
Vanguard High Dividend Yield ETF (VYM)
This is the first pure high yield play on this list. Its 3.7% yield is roughly double that of the S&P 500 making it a nice addition to a bigger portfolio.
The one possible drawback is that its qualification criteria are fairly relaxed allowing for the potential of a stinker or two sneaking into the portfolio. VYM simply looks for companies in the top half of the dividend-paying universe according to estimated 12-month forward yield and market cap-weights them. Still, this is a top-tier option from the high yield universe.
WisdomTree U.S. Large-Cap Dividend ETF (DLN)
DLN is a very broad-based dividend ETF choice. It targets the 300 largest companies from the universe of dividend-paying companies. In that sense, it's not a whole lot different from what you'd get in an S&P 500 fund, except it gives you only a slightly bigger large-cap tilt.
Its dividend dollars-weighting methodology is a bit unique giving greater weight to the companies that pay out more to shareholders. DLN doesn't get a whole lot of attention in the dividend ETF universe, but WisdomTree is one of my favorite ETF issuers and this is certainly a worthy choice.
WisdomTree U.S. Quality Dividend Growth ETF (DGRW)
Another entry from WisdomTree, DGRW, as the name suggests, targets companies with quality balance sheets and expectations for future company growth, but not necessarily a history of paying and growing their dividends.
The factors considered include long-term earnings growth expectations and three year historical averages for return on equity and return on assets.
FlexShares Quality Dividend Index ETF (QDF)
QDF uses a fairly sophisticated selection process that looks at management efficiency, profitability and cash flow to develop an overall dividend quality score, with the bottom quintile automatically excluded. From there, it optimizes the portfolio to look for high dividend quality scores and above average yields while trying to maintain market-like levels of risk.
QDF has always been one of my personal favorite funds due to its ability to combine high quality, high yield and risk reduction in a single package.
More ETF Research
If you liked this article/video, please click the LIKE button or share it on Twitter, Facebook, etc. using the buttons below.
Feel free to leave any comments, questions, or thoughts on the ideas presented here (and sign-up if you haven't already).
Follow me and receive periodic notifications when I post here by clicking the FOLLOW button at the top of the page!