Top 10 Dividend ETFs

This posting features a comprehensive review of the dividend-related ETF sector. There are more than three dozen ETFs issued (including Elements not covered here) with more on the way to evaluate in this sector. To simplify matters for investors, we've whittled choices down to 10. The issues chosen represent a broad cross-section of domestic, global, overseas, real estate (REITs) and other sectors from a variety of sponsors. Doing so, makes sorting through the sector more manageable for most investors. We're not necessarily recommending one issue over another; rather we're just trying to feature those issues that aren't repetitive, although we mention other choices within each brief review where applicable.

Within each category, we filter them by placing importance on high assets under management, liquidity and/or strategies that make a difference the most critical tests. Newer issues tied to new indices with long (more than five years) of historical data may be worth investigating, featuring and using as a replacement if necessary.

As demographics in the developed world change with aging populations, the demand for income increases while risk avoidance decreases. At the same time, many investors understand the need for growth continues given the potential for inflation. Keeping a portion of a portfolio in common stocks among other sector allocations is important; however, adding yield through dividends can help achieve the dual goal.

Remember, with higher dividend yields, the more likely risk-taking increases -- there's no free lunch as they say.

XLU (SPDR Utilities Sector ETF) follows the Utilities Select Sector Index. This sector remains the historical first choice for investors seeking stable dividend income with the potential for long-term growth in value and increases in dividends. It was launched with a series of other S&P 500 sectors in June 2011. AUM (Assets under Management) exceeds $4.5 billion and average daily trading volume is roughly 6.3M shares. The expense ratio is .20% while the current quarterly dividend is $.30. The current yield is 3.60% and as of June 2011 YTD performance 8.99%.

Data as of June 2011

XLU Top Ten Holdings & Weightings

  1. The Southern Company (SO):                                     8.30%
  2. Dominion Resources, Inc. (D):                        6.79%
  3. Exelon Corp (EXC):                                         6.78%
  4. NextEra Energy, Inc. (NEE):                            5.97%
  5. Duke Energy Corp (DUK):                              5.63%
  6. FirstEnergy Corp (FE):                                    4.57%
  7. American Electric Power  (AEP):                      4.52%
  8. PG & E Corporation (PCG):                            4.23%
  9. Public Service Enterprise Group (PEG):          4.15%
  10. PPL Corp (PPL):                                              3.91%

DVY (Dow Jones Select Dividend ETF) was the first ETF launched in November 2003 with a focus on dividends. It follows the index of the same name. AUM is over $6 billion and average daily trading volume exceeds 660K shares. The expense ratio equals .40% and the current quarterly dividend is $.47 meaning a current yield as of June 2011 3.6%. Given the variety of companies comprising the index dividends can vary more than with utilities for example. Through March 2011 DVY has returned 5.57%.

Competitive issues could include DTD (Wisdom Tree Total Dividend Fund) and FDL (First Trust Morningstar Dividend Leader Index ETF)

Data as of June 2011

DVY Top Ten Holdings & Weightings

  1. Lorillard, Inc. (LO):                               4.06%
  2. Chevron Corporation (CVX):                2.20%
  3. Entergy Corp (ETR):                            2.04%
  4. VF Corporation (VFC):                                     1.85%
  5. Integrys Energy Group Inc (TEG):       1.85%
  6. Kimberly-Clark Corporation (KMB):      1.84%
  7. CenturyLink, Inc. (CTL):                      1.79%
  8. FirstEnergy Corp (FE):                        1.74%
  9. McDonald's Corporation (MCD):          1.62%
  10. DTE Energy Holding (DTE):                1.60%

VIG (Vanguard Dividend Appreciation ETF) follows the Broad Dividend Achievers Index which features constituents with a history of increasing dividends. It was launched in April 2004, has AUM of $6.4 billion and an average daily trading volume of just below 700K shares. The expense ratio is .18%. As of March 2011, VIG returned 4.19% YTD. The current quarterly dividend is $.27 which provides a yield of around 2%.

Data as of June 2011

VIG Top Ten Holdings & Weightings

  1. ConocoPhillips (COP):                                     4.45%
  2. Chevron Corporation (CVX):                4.38%
  3. Coca-Cola Company (KO):                   4.09%
  4. ExxonMobil Corporation (XOM):          4.07%
  5. United Technologies Corp (UTX):       3.96%
  6. McDonald's Corporation (MCD):          3.95%
  7. IBM Corp (IBM):                                  3.91%
  8. PepsiCo, Inc. (PEP):                            3.79%
  9. Procter & Gamble Company (PG):       3.71%
  10. Caterpillar Inc. (CAT):                          3.67%

 

IYR (iShares Dow Jones U.S. Real Estate ETF) follow the index of the same name and was first issued in June 2000. AUM is just under $3 billion while average daily trading volume is nearly 8M shares. The expense ratio is .48% and the quarterly dividend is $.50 making for a yield of around 3.3% which is low given the higher risk for the sector. This is chiefly due to most assets consisting of REITs (Real Estate Investment Trusts) which are much more volatile and economically sensitive. It's said that over the next 5 years REITs have $3 trillion in outstanding debts due or refinance. Nevertheless, IYR has returned 6.25% through March 2011.

A competitive choice would be VNQ (Vanguard REIT ETF) which was launched September 2004 and tracks the MSCI U.S. REIT Index. AUM equal $9.2 billion and average daily trading volume is 1.8M shares. The current dividend is $.41 which makes the yield roughly 2.75% based on prices as of June 2011. The expense ratio is a low .12%.

Data as of June 2011

IYR Top Ten Holdings & Weightings

  1. Simon Property Group, Inc. (SPG):                 8.32%
  2. Vornado Realty Trust    (VNO):                        4.26%
  3. Equity Residential (EQR):                                4.21%
  4. Public Storage (PSA):                                      4.01%
  5. Boston Properties, Inc. (BXP):                                     3.61%
  6. Annaly Capital Management, Inc. (NLY):          3.46%
  7. HCP, Inc. (HCP):                                             3.39%
  8. Host Hotels & Resorts, Inc. (HST):                  2.82%
  9. Weyerhaeuser Company (WY):                       2.77%
  10. AvalonBay Communities, Inc. (AVB):                2.73%

RWX (SPDR Wilshire International Real Estate ETF) tracks the Dow Jones Global ex-U.S. Real Estate Securities Index which basically consists of REITs in developed and emerging markets. It was launched in December 2006. AUM exceeds $2.6 billion while average daily trading volume is over 385K shares. The current quarterly dividend is $.19 making the dividend yield only 1.85%. From our view this is too low a yield given risks inherent in the real estate sector. Nevertheless, as of May 20011 YTD return has bend 5.20%. Shares overseas may benefit or lose given currency fluctuations which are an additional consideration.

Data as of June 2011

RWX Top Ten Holdings & Weightings

  1. Westfield Group (WDC):                                  6.95%
  2. Unibail-Rodamco Se (UL):                               6.39%
  3. Brookfield Asset Management (BAM):            5.69%
  4. Mitsui Fudosan Co., Ltd. (8801):                     4.59%
  5. Land Securities Group PLC (LAND):               3.26%
  6. Hong Kong Land Holdings Ltd. (H78):            2.81%
  7. British Land Co PLC (BLND):                           2.70%
  8. Westfield Retail Trust (WRT):                          2.54%
  9. Hang Lung Properties Ltd. (00101):                2.54%
  10. Link Real Estate Investment Trust (00823):     2.36%

 

PID (PowerShares International Dividend Achievers ETF) tracks the companies that have increased their annual dividends for five or more consecutive years. It was launched in September 2009. AUM equal $530 million and average daily trading volume is around 123K shares. The expense ratio is .50% while the quarterly dividend currently is $.07 making the yield less than 2%. Again in the international space currency issues should always be a consideration.

Other ETFs to consider within this space include IDV (iShares International Select Dividend ETF) which follows the Dow Jones International Select Dividend ETF), DWX (SPDR International Dividend ETF) and DWM (Wisdom Tree DEFA ETF). In addition, Global X just issued SDIV (Solactive Global Super Dividend ETF).

Data as of June 2011

PID Top Ten Holdings & Weightings

  1. Partner Communications Company, Ltd. ADR (PTNR):            4.94%
  2. Philippine Long Distance Telephone ADR (PHI):                     3.99%
  3. Telefonica, S.A. ADR (TEF):                                                    3.62%
  4. National Grid PLC ADR (NGG):                                               3.31%
  5. Teekay LNG Partners L.P. (TGP):                                           3.30%
  6. GlaxoSmithKline PLC ADR (GSK):                                           3.09%
  7. AstraZeneca PLC ADR (AZN):                                                 3.04%
  8. Vodafone Group PLC ADR (VOD):                                          2.55%
  9. British American Tobacco PLC ADR (BTI):                              2.53%
  10. Telefonos de Mexico SAB de CV ADR (TMX):                                    2.50%

VYM (Vanguard High Dividend Yield ETF) tracks the FTSE High Dividend Yield Index and was launched November 2006. Much of Vanguard's remains their low expense ratio which for this ETF is only .18%. AUM equals $1.3 billion and average daily trading volume is roughly 156K shares. The quarterly dividend is $.31 putting the yield at less than 3%. The YTD return is 4.59% through June 2011. When you begin focusing on "high yield" you're adding more risk potentially and should receive better returns than commonly available with higher graded securities. VYM is in the Large Cap space so quality isn't necessarily as much an issue.

Alternative choices in this sector include among others HDV (iShares High Dividend ETF) and PFM (PowerShares Dividend Achievers ETF).  

Data as of June 2011

VYM Top Ten Holdings & Weightings

  1. ExxonMobil Corporation (XOM):                      7.28%
  2. Chevron Corporation (CVX):                            3.69%
  3. General Electric Company (GE):                      3.67%
  4. Microsoft Corporation (MSFT):                        3.66%
  5. AT&T, Inc. (T):                                                             3.12%
  6. Procter & Gamble Company (PG):                   2.96%
  7. Pfizer Inc. (PFE):                                             2.81%
  8. Johnson & Johnson (JNJ):                              2.79%
  9. Coca-Cola Company (KO):                               2.64%
  10. Wal-Mart Stores, Inc. (WMT):                          2.39%

PEY (PowerShares High Yield Dividend Achievers ETF) tracks the Dividend Achiever 50 Index which is based on dividend yield and consistent growth in dividends. The fund was launched December 2004. The expense ratio is .50% and covers a multi-cap of assets. AUM is over $200 million and average daily trading volume is roughly 138K shares. The current monthly dividend is $.03 and the yield is over 3.80%.  The YTD return through May 2011 is -2.82%.

Data as of June 2011

PEY Top Ten Holdings & Weightings

  1. Century Link, Inc. (CTL):                                 3.42%
  2. Mercury General Corporation (MCY):             2.99%
  3. Altria Group Inc. (MO):                                    2.84%
  4. AT&T, Inc. (T):                                                             2.71%
  5. PPL Corp (PPL):                                              2.67%
  6. Pitney Bowes Inc. (PBI):                                  2.61%
  7. Enterprise Products Partners L.P. (EPD):        2.61%
  8. Old Republic International (ORI):                     2.58%
  9. Vectren Corp (VVC):                                        2.50%
  10. People's United Financial, Inc. (PBCT):           2.45%

DEM (WisdomTree Emerging Markets Equity Income ETF) is a fundamentally weighted index featuring the highest yielding from the WisdomTree Emerging Market Dividend Index. The fund was launched July 2007. AUM $1.6 billion and average daily trading volume is just under 250K shares. The expense ratio is .63%. The current quarterly dividend equals $.17 providing a yield of just over 1% which is quite low given the higher risk nature of emerging markets. The YTD return through May 2011 is 2.97%.

An alternative choice may be EDIV (SPDR S&P Emerging Market Dividend ETF) issued recently in February 2011.

 

CVY (Guggenheim Multi-Asset Income ETF) tracks the Zacks Multi-Asset Income Index which is designed to identify and track companies with high income and positive risk/reward characteristics. The ETF was launched in September 2006. AUM is over $400M and average daily trading volume exceeds 145K shares. The expense ratio is .60% and the quarterly dividend is currently $.26 making a yield close to 5%. YTD performance or return has been 5.33%.

Alternative choices include DEF (Guggenheim Defensive Equity ETF) and DHS (WisdomTree High-Yielding Equity ETF)

 

 

Data as of June 2011

CVY Top Ten Holdings & Weightings

1.    Lorillard, Inc. ( LO ):                                    1.46%

2.    Linn Energy LLC ( LINE ):                           1.32%

3.    Chevron Corporation ( CVX ):                      1.26%

4.    ConocoPhillips ( COP ):                               1.18%

5.    Provident Energy Ltd. ( PVX ):                     1.15%

6.    GlaxoSmithKline PLC ADR ( GSK ):             1.10%

7.    Philip Morris International, Inc. ( PM ):         1.10%

8.    HSBC Holdings Pfd:                                  1.09%

9.    Merck & Co Inc ( MRK ):                              1.08%

10.  Altria Group Inc. ( MO ):                              1.07%

As with other income oriented sectors, ETFs structured with higher dividends as a priority are much in demand given aging demographics in developed countries. With these issues growth opportunities in overall asset appreciation and increases in dividends are present. Nevertheless, as yields are now quite low historically, investors must remember that low yields will not protect them in a rising interest rate environment or any significant stock market corrections.

 

As stated with other sectors, remember ETF sponsors must issue and their interests aren't aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

For further information about portfolio structures using retail or other ETFs see www.etfdigest.com .

You may address any feedback to: feedback@etfdigest.com   

(Source for holding data is from ETF Database and from various sponsors.)

>>To see these ETFs in action, visit the 10 Top Dividend ETFs portfolio on Stockpickr.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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