In the world of income-generating investments, high dividend ETFs reign supreme. However, not all dividend ETFs are created equal. These five stand out for investors seeking quality, diversification, and a balance of risk and reward.
Why Now Is a Strategic Time to Invest in High Dividend ETFs
Before looking at these ETFs, it is essential to understand who they will/should appeal to. With rising interest rates and market volatility a constant concern, investors are increasingly looking for stable income streams. Resultingly, high dividend ETFs are a compelling option for those seeking a steady income stream (i.e., retirees). They often hold established companies with a history of stable earnings, which can provide a sense of security and potentially lower volatility compared to growth-focused investments. This makes them appealing to risk-averse investors and those with a long-term horizon, especially when dividends are reinvested to leverage the power of compounding.
Furthermore, high dividend ETFs can offer targeted sector exposure, allowing investors to align their portfolios with specific industries like energy or real estate. They can also provide tax advantages in certain regions due to the favorable tax treatment of qualified dividends. However, it’s crucial to remember that these ETFs are still subject to market fluctuations and might not be suitable for those seeking rapid growth or short-term gains.
High Dividend Focused Exchange Traded Funds (ETFs)
*Note: Metrics are provided in USD and may have changed from the time of writing.*
1. Schwab U.S. Dividend Equity ETF
SCHD focuses on high-quality companies with a history of consistent dividend payments and strong financial health. This “quality king” ETF prioritizes sustainable yields from companies with strong fundamentals, making it similar to a “dividend king” approach.
Notably, SCHD boasts a low expense ratio and a history of solid performance, which can be attributed to its focus on companies that have weathered recent market volatility well.
Key holdings of this fund include the following companies,
| Net Assets of Fund | Expense Ratio | 1-yr Return | 3-yr Return | Distribution Yield (TTM) |
| ~$61.88 Billion | 0.06% | 24.03% | 8.21% | 3.34% |
What sets it apart from direct competitors?
SCHD’s rigorous selection criteria and focus on financial health make it a standout choice for long-term dividend investors. Just be mindful that its focus on U.S. equities may present some concentration risk.
VYMI offers exposure to international dividend-paying companies, providing diversification benefits. It tracks an index of high-yielding equities outside the U.S., tapping into opportunities in developed markets overseas. This “passport to dividends” is an excellent choice for investors seeking to reduce their reliance on the U.S. market.
Key holdings of this fund include the following companies,
| Net Assets of Fund | Expense Ratio | 1-yr Return | 3-yr Return | Distribution Yield (TTM) |
| ~$8.5 billion | 0.22% | 24.34% | 8.81% | 4.45% |
What sets it apart from direct competitors?
VYMI provides valuable international diversification, reducing exposure to fluctuations in the U.S. market. However, it should be noted that currency exchange rate risks are associated with international investing.
3. Invesco S&P 500 High Dividend Low Volatility ETF
SPHD combines high dividends with low volatility, making it a good option for investors seeking income with less risk. It selects stocks from the S&P 500 with high dividend yields and low volatility characteristics, aiming to provide a smoother ride compared to other high-dividend ETFs.
Key holdings of this fund include the following companies,
| Net Assets of Fund | Expense Ratio | 1-yr Return | 3-yr Return | Distribution Yield (TTM) |
| ~$3.44 billion | 0.30% | 34.80% | 10.82% | 3.5% |
What sets it apart from direct competitors?
SPHD’s focus on low volatility makes it potentially appealing for investors who want to reduce the ups and downs often associated with high-dividend stocks. However, its emphasis on low volatility may also limit its potential for high returns.
If SCHD is the “quality king”, PEY is the “dividend growth champion.” It zeroes in on companies with a proven track record of increasing their dividends year after year. This implies strong financial performance and a commitment to rewarding shareholders. PEY invests in U.S. companies that have increased dividends for at least ten consecutive years.
Key holdings of this fund include the following companies,
| Net Assets of Fund | Expense Ratio | 1-yr Return | 3-yr Return | Distribution Yield (TTM) |
| ~$1.22 billion | 0.52% | 20.88% | 8.81% | 4.73% |
What sets it apart from direct competitors?
PEY’s focus on dividend growth is a strong indicator of company strength and potential for future returns. Despite this, the past does not always predict the future, meaning past performance is not indicative of future results.
5. iShares Core High Dividend ETF
Think of HDV as a “blue-chip dividend play.” This means focusing on large-cap, well-established companies with a history of reliable dividend payments. It’s a solid core holding for dividend-focused investors seeking exposure to market giants.
Key holdings of this fund include the following companies,
| Net Assets of Fund | Expense Ratio | 1-yr Return | 3-yr Return | Distribution Yield (TTM) |
| ~$11.20 billion | 0.08% | 23.38% | 11.79% | 3.23% |
What sets it apart from direct competitors?
HDV provides exposure to a diversified portfolio of blue-chip companies, offering stability and a history of reliable dividends. While its focus on large-cap stocks is a strength of the ETF, it also means that growth potential compared to ETFs with a broader market capitalization range may be limited.
Final Thoughts on High Dividend ETFs
High-dividend ETFs can be a valuable tool for income-seeking investors, but it’s crucial to select funds that align with your individual investment goals and risk tolerance. This means considering factors such as the ETF’s investment strategy, expense ratio, underlying holdings, and dividend yield.
The ETFs highlighted above offer a range of options for investors seeking high-quality income-generating investments. Whether you prioritize quality, international diversification, low volatility, dividend growth, or large-cap stability, there’s likely an ETF that fits your needs.
Make sure to visit our look at the top online brokers that can help you invest and gain exposure to what may be lucrative opportunities.
