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The 2 Stocks That Show Up In All 9 Top-Rated Dividend ETFs

From a starting universe of nearly 800 stocks, only two meet the criteria of dividend growth, sustainability, quality and high yield.

Since I write almost exclusively about exchange-traded funds, it's natural for me to recommend top-rated ETFs for investors to add to their portfolio. Whether your goal is retirement saving, building an emergency and generating dividend income, the ETF industry very likely has you covered with a fund to fit almost any goal.

There's a large population of dividend investors who prefer stocks over ETFs to build a dividend portfolio. If that's your preferred method of building a portfolio, I think the ETF marketplace can still be very useful in helping to narrow down your list of potential stocks to target.

There are very few actively-managed dividend ETFs out in there marketplace, so there's not really a Cathie Wood/ARK ETFs opportunity out there where you can just copy the trades of someone who's developed an incredible track record. Most of top-rated dividend ETFs track an index that follows a pre-determined strategy.

Most of those are smart strategies too. Some target long-term dividend growers. Others target dividends backed by strong cash flows and quality balance sheets. There are those that target high yields and several that implement a combination of these strategies together.

It's not unusual for dividend stocks that qualify for several of these portfolios and strategies, but what if there are some stocks out there that happen to show up in all of them?

It turns out there are!

Dividend ETFs To Target Dividend Stocks

Thanks to the database from ETF Action, we're able to curate the list of holdings from the biggest and best ETFs available. These are mostly the largest ETFs in the marketplace, but all use sensible strategies covering a wide variety of investing styles and segments of the market.

For the purposes of finding top-rated dividend stocks, I'm going to consider the portfolio holdings of the following 9 dividend ETFs.

  • Vanguard High Dividend Yield ETF (VYM)
  • Vanguard Dividend Appreciation ETF (VIG)
  • Schwab U.S. Dividend Equity ETF (SCHD)
  • iShares Core Dividend Growth ETF (DGRO)
  • ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
  • WisdomTree U.S. Quality Dividend Growth ETF (DGRW)
  • SPDR S&P Dividend ETF (SDY)
  • First Trust Value Line Dividend Index ETF (FDV)
  • iShares Core High Dividend ETF (HDV)

If you're an ETF investor, these names are probably very familiar to you. If not, it's safe to say that these are the funds that the majority of dividend investors tend to gravitate towards. I won't go through the objectives and methodologies of each of these ETFs here, but the name of the fund generally tells you which universe they're going after - dividend growth, dividend quality or high yield. The Schwab U.S. Dividend Equity ETF (SCHD) is one of those you may not be able to figure out by name alone, but it targets companies that have long dividend payment histories, growth characteristics and above average yield all in one. The First Trust Value Line Dividend Index ETF (FDV) also uses a combination of proprietary factors. The others should be a bit more intuitive.

The Results

The ETF Action database tells us the following.

There are nearly 800 stocks that appear in at least one of the 9 ETFs listed. Those ETFs total nearly $170 billion in assets managed.

Top Dividend ETF Holdings

Top Dividend ETF Holdings

We're looking at a pretty large starting universe of dividend stocks. Given that all of them pay dividends in some form or fashion, you'd expect a high degree of overlap, especially within funds that come with comparable strategies, but that's not really the case.

source: ETF Action

source: ETF Action

Of the 36 possible 2-fund combinations, only three of them have more than 50% of assets overlapping. The iShares Core Dividend Growth ETF (DGRO) and the Vanguard High Dividend Yield ETF (VYM) share the greatest overlap at just over 60%.

Even similar strategies have relatively low overlaps. VYM and the SPDR S&P Dividend ETF (SDY), which both target high yield stocks only have a 25% similarity, just as an example.

That will make finding stocks that overlap every one of these 9 portfolios that much more difficult. Even finding stocks that appear in the majority of these funds is a challenge.

source: ETF Action

source: ETF Action

Of the 775 stock universe we started with, only 50 stocks, or just over 6%, appear in at least 6 of the 9 ETFs. 26 names show up in 7 of them. 6 stocks are in 8 of the 9 ETFs.

Just two stocks appear in all 9 of the ETFs in our list.

To clear that hurdle, the stock has to have pretty much everything - a decades-long history of growing the dividend, a low payout ratio, strong cash flows, an above average yield. Are they the perfect dividend stocks to add to your portfolio? Maybe not perfect, but they may be as close as you can get.

PepsiCo (PEP)

PepsiCo (PEP) Dividend Scorecard; source: Seeking Alpha

PepsiCo (PEP) Dividend Scorecard; source: Seeking Alpha

The beverage maker has been growing their dividend for nearly a half century without interruption. Its 5-year growth rate of nearly 8% and 10-year annualized growth rate of nearly 9% means that shareholders have been getting strong pay raises continuously for some time.

The payout ratio of nearly 70% seems a little on the higher end, but at this point I'm sure the company will do whatever it takes to maintain its dividend payout given its reputation. Considering that it cleared the screens of 9 different top-rated dividend ETFs for quality, growth and yield, this may be one of the best dividends you can own.

T. Rowe Price Group (TROW)

T. Rowe Price (TROW) Dividend Scorecard; source: Seeking Alpha

T. Rowe Price (TROW) Dividend Scorecard; source: Seeking Alpha

Seeing this investment management company among the elite may be a bit surprising given that there are so many more well-known names in the industry, but it shouldn't be. Price has a lengthy menu of highly-rated mutual funds and is only starting to get into ETFs as well. This company has managed to strike a nice balance between asset growth and cash flow within the lucrative investment management space.

T. Rowe Price has been significantly increasing its dividend over the past decade. Its 12% annual growth rate over the past 5 and 10 years is very appealing and the 36% payout ratio means its sustainable on top of that. The 2.6% is in the more modest range, but shareholders can count on it for years to come.

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