If you were a dividend investor in September, you were able to protect yourself from some of the losses incurred by the broader market, but not a whole lot. The WisdomTree U.S. Large Cap Dividend ETF (DLN), which I like to use as a benchmark for a broadly diversified dividend portfolio, outperformed the S&P 500 (SPY) by about 0.2% for the month. Growth sectors mostly outperformed, defensives lagged and cyclicals were an in-between mix. Dividend ETFs, therefore, didn't build a lot of sentiment and finished somewhere in the middle of the pack.

There were opportunities for outperformance within the dividend ETF universe in September, but you had to be pretty targeted with your investments. Only two major themes consistently did well - international dividends and high yield. If you were heavy into more traditional dividend growth strategies or overweighted in U.S. equities, chances are you weren't able to outperform the broader market last month. Of course, there are exceptions, but September largely belonged to the riskier options in the space.

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Forward-looking prospects for dividend ETFs in the 4th quarter could be interesting though. If this cyclical reflation trade we've seen over the past week or so gains some life, there's a path for dividend payers to do well. The traditional dividend growers might belong to areas, such as consumer staples and healthcare, but the high yield opportunities come from financials and energy, two sectors that are getting a long look from investors lately. If higher interest rates can be sustained and energy prices remain elevated, the Fed could be providing a road map that sees dividend ETFs finally move back into favor again.

Here's the list of the top performing dividend ETFs for the month of September 2021.

Top Performing Dividend ETFs for September 2021

Top Performing Dividend ETFs for September 2021

Only two ETFs that fell into one of ETF Action's dividend strategy categories posted positive returns in September. The WisdomTree Japan Small Cap Dividend ETF (DFJ) benefited more from an equity market resurgence in that nation as opposed to its focus on dividends. Japan is enjoying a bit of an economic renaissance along with optimism over new leadership and that helped drive returns over the past month.

The other, the First Trust Dorsey Wright Momentum & Dividend ETF (DDIV), benefited from the portfolio's nearly 50% weighting in financials along with its high yield focus. It's also got roughly 1/4 of the fund's assets dedicated to real estate, an area of the market that has shown to underperform during rising rate Fed tightening cycles, so there may be some need to tap on the brakes with this one. Still, the reemergence of the reflation trade could do this fund well.

The iShares Emerging Markets Dividend ETF (DVYE) and the SPDR S&P Emerging Markets Dividend ETF (EDIV) show up in the top 6 for the second straight month. Emerging markets, in general, have been on a pretty wild ride over the past several months, but dividend payers actually haven't fared that poorly. Both were exposed to the political environment in China, but relatively high allocation to dividend payers in both Taiwan and Russia paid off. The 5-6% yields currently being offered by this pair are also attractive.

Other ETFs worth noting:

The Invesco KBW High Dividend Yield Financial ETF (KBWD) rode the wave of higher interest rates in the second half of the month to come at least close to breaking even. This fund is loaded with mortgage REITs, BDCs, custody banks so it'll remain highly cyclical and volatile. It's a good fund when you're on the right side of the train tracks. The Global X SuperDividend ETF (SDIV) and the Global X SuperDividend U.S. ETF (DIV), two other funds on this list, use a somewhat similar strategy.

Among the largest dividend ETFs to make the list are the iShares Select Dividend ETF (DVY), the iShares Core High Dividend ETF (HDV) and the SPDR Portfolio S&P 500 High Dividend ETF (SPYD). All three utilize a high yield focus either in part of in entirety.

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Also read:

Top Performing ETFs For September 2021

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