Dividend ETFs for 2017
Dividend investing is an appealing way to receive a steady income. This is especially true in the current interest rate environment, with savings accounts offering near-zero-percent returns.
Your goal at the end of the day is to receive a steady income through a dividend and to preserve your capital as much as possible.
There is a method of investing that will help you invest in many different companies by owning one investment product: an exchange-traded fund (ETF).
An ETF trades exactly like a stock does on the trading exchange, expect that the investment is made into a portfolio of securities. There could be as little as 20 or 30 different stocks within the ETF, or even hundreds. Right off the bat, a key advantage is that the investment is diversified among different stocks and sectors.
Before going out and purchasing a dividend ETF, I would recommend considering a few things first. The first would be the holdings within the ETF and the percentage of the positions. These is important because an ETF could have a large position in one stock, which could negatively affect your overall future returns.
The second factor to consider is the history of the dividend payments. If the holdings within the ETF are dividend growth stocks, then the expectation would be to be sharing these growing dividends.
Something else to consider would be the industries that an investment is made into. For example, the energy sector is known to be volatile so, if you are uncomfortable with such volatility, it would be best to look elsewhere.
Owning a dividend ETF does come at an annual cost, which is known as a management expense ratio (MER). This is paid to the portfolio management team for following the index or making adjustments to the dividend ETF. This would be a great impact on your overall long-term returns if the MER fee is very high.
This is why it is important to take a look at all areas of the dividend ETF before an investment is made. Below is a list of the top 10 dividend ETFs worth consideration.
Best Dividend ETFs
| ETF Name | Symbol | Price | Dividend Yield | MER Ratio |
|---|---|---|---|---|
|
Financial Select Sector SPDR FUND |
XLF | $24.33 | 2.53% |
0.14% |
|
ProShares S&P 500 Dividend Aristocrats ETF |
NOBL | $55.17 | 1.82% | 0.35% |
| Vanguard Total World Stock | VT | $64.27 | 2.06% |
0.11% |
|
Vanguard Small-Cap Value ETF |
VBR | $124.82 | 2.31% |
0.08% |
|
iShares S&P US Preferred Stock ETF |
PFF | $38.47 | 5.71% | 0.47% |
| Powershares S&P 500 High Dividend Low Volatility Portfolio | SPHD | $40.22 | 3.13% |
0.3% |
|
iShares Core High Dividend ETF |
HDV | $82.81 | 3.43% | 0.08% |
| Vanguard Dividend Appreciation ETF | VIG | $88.60 | 2.6% |
0.09% |
|
iShares Select Dividend ETF |
DVY | $90.87 | 3.73% |
0.39% |
1. Financial Select Sector SPDR Fund
The Financial Select Sector SPDR Fund (NYSEARCA:XLF) ETF tracks the index of the S&P 500 financial stocks, which is weighted by the market cap. This simply means that the focus is on Fortune 500 companies and large banks,avoiding small-cap names.
The top holdings in XLF are Berkshire Hathaway Inc. (NYSE:BRK.B) and JPMorgan Chase & Co. (NYSE:JPM). These companies, along with the rest of the portfolio, are in a very favorable environment thanks to increasing interest rates, a key metric for financial companies.
These companies rely on what are known as net interest margins. Net interest margins are the difference in interest rates that customers pay on an outstanding loan and receive on a savings account. As interest rates increase, net interest margin expand.
Since December 2015, there has been two interest rate hikes by the U.S. Federal Reserve, providing evidence that the economy is seeing growth. Needless to say, if the environment continues, additional hikes are possible. Also, if interest rates continue on an upward slope, all the companies within this ETF should see a financial benefit and trade higher over time.
2. ProShares S&P 500 Dividend Aristocrats ETF
The ProShares S&P 500 Dividend Aristocrats (BATS:NOBL) ETF seeks to track the performance of the S&P 500 Dividend Aristocrats index. Dividend aristocrats are businesses that have a track record of increasing their dividend for at least 25 consecutive years, in addition to be Fortune 500 companies.
This would include companies such as Abbott Laboratories (NYSE:ABT), which has increased its dividend for 44 straight years, and AT&T Inc. (NYSE:T), which has done the same for 32 consecutive years.
With the focus on companies that have a track record of increasing their dividend, unitholders of NOBL have seen the dividend increase every year since the inception. I will not be surprised if this trend continues as long as the companies continue their streak of increasing their dividends.
The NOBL ETF is currently trading at $55.17, which is offering a current yield of 1.82%.
3. Vanguard Total World Stock
The Vanguard Total World Stock (NYSEARCA:VT) ETF is designed to track the performance of the FTSE Global All Cap indices of stocks of companies located around the world. This ETF is a well-diversified portfolio of developed and emerging market stocks.
Approximately half of the portfolio is invested in U.S. companies that have a global presence, such as Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT). The other half of the portfolio is invested in companies based abroad, including Novartis AG (VTX:NOVN) and Total SA (ADR) (NYSE:TOT).
The VT ETF is a great method for getting exposed to many companies with a global presence at a very low cost. The annual management fee annually is 0.14%; which simply means that for each $100.00 invested, $0.14 is paid to the management team.
As an investor, purchasing companies ‘s stocks on foreign trading exchanges could become messy. There are rules and regulations that must be followed. There also needs to be a foreign exchange transaction completed in the country that the investment will be made into. Ownership in the VT ETF, however, solves everything with one straightforward purchase. For this reason, it’s my best dividend ETF.
4. Vanguard Small-Cap Value ETF
The Vanguard Small-Cap Value ETF (NYSEARCA:VBR) tracks the performance of the CRSP U.S. Small Cap Value index. The advisor attempts to replicate the ETF to the index by holding each stock in the same proportion as its weighing in the index.
VBR is a unique investment opportunity because it offers exposure to the small-cap universe, which is very difficult for dividend investors to enter. This is because many small-cap companies do not normally pay a dividend and tend to reinvest their earnings back into the business.
Another benefit is that there are more than 800 holdings in this ETF, which removes the risk of owning one individual small-cap stock. To add to this, there are many different sectors that an investment is made into, such as financial, technology, and industrial.
Owning VBR will net you a dividend yield of 2.31%, based on the current trading price of $124.82.
5. iShares S&P US Preferred Stock ETF
The iShares S&P US Preferred Stock ETF (NYSEARCA:PFF) seeks to track the investment results of the S&P 500 U.S. Preferred Stock index.
PFF ETF is a great opportunity for investors to earn a high dividend yield of 5.71%, based on the current trading price of $38.47.
Another great positive of owning the PFF ETF is that there is a lot of liquidity if a position needs to be purchased or sold. I mention this because purchasing or selling preferred shares can be quite difficult sometimes, due to the lack of trading occurring on individual preferred shares.
6. Powershares S&P 500 High Dividend Low Volatility Portfolio
The Powershares S&P 500 High Dividend Low Volatility Portfolio (NYSEARCA:SPHD) ETF tracks the price and yield of the S&P 500 Low Volatility High Dividend index. The focus for SPHD is choosing the 50 least-volatile, highest-yielding stocks. Capital of investment is more focused on sectors like defensive industries, utilities, and basic materials.
To understand SPHD further, the first criteria when making an investment is based on the volatility. Volatility is measured by the beta, which reflects the day-to-day movement of a stock’s performance. The overall market has a beta of 1.0 and SPHD has a beta of 0.89, which simply means that if the market fell by one percent, then SPHD would be down by 0.89%.
Besides the beta of the investment, the dividend yields of the investments are also important. Some of the names included in the portfolio are General Motors Company (NYSE:GM), Iron Mountain Incorporated (Delaware) REIT (NYSE:IRM), and CME Group Inc (NASDAQ:CME).
7. iShares Core High Dividend ETF
The iShares Core High Dividend ETF (NYSEARCA:HDV, BMV:HD) tracks the results of the Morningstar Dividend Yield Focus index, which is composed of relatively high dividend-paying U.S. equities. The portfolio managers screen for high earnings potential and dividend sustainability, ensuring a steady and reliable payout to unitholders.
With such a strategy, the ETF is heavily weighted towards consumer non-cyclicals, energy, and the healthcare sector. Some of the top holdings of HDV are Johnson & Johnson (NYSE:JNJ), Chevron Corporation (NYSE:CVX), and Philip Morris International Inc. (NYSE:PM).
HDV is currently trading at $82.81 and offering a dividend yield of 3.43%.
8. Vanguard Dividend Appreciation ETF
The Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) tracks the performance of the NASDAQ U.S. Dividend Achievers Select Index, which features companies that have increased their annual dividend at least 10 years.
VIG has capital invested in many different sectors, such as healthcare, consumer defense, and technology.
Some of the holdings within the VIG ETF are dividend growth stocks like Microsoft, Johnson & Johnson (NYSE:JNJ), and PepsiCo, Inc. (NYSE:PEP). The holding with VIG are large-cap U.S. companies with a global presence.
Since the inception of VIG, the dividend has seen growth year after year. The VIG ETF is trading at $88.60 and offering a current dividend yield of 2.6%. Definitely, a best dividend ETF.
9. iShares Select Dividend ETF
The iShares Select Dividend ETF (NYSEARCA:DVY) seeks to track the results of the Dow Jones U.S. Select Dividend Index, which is composed of high-dividend-paying U.S. equities.
DVY has a history of more than 10 years, with many increases in the dividend over that time. A large part of this is due to the sectors in which an investment are made, including energy, financial services, and consumer cyclicals. Some of the names within DVY are Caterpillar Inc. (NYSE:CAT), Seagate Technology PLC (NASDAQ:STX), and Lockheed Martin Corporation (NYSE:LMT).
As of this writing, the DVY ETF is trading at $90.87, with a yield of 3.73%. The current yield is almost double that of the S&P 500 index.
10. iShares Dow Jones US Energy Sector (ETF)
The iShares Dow Jones US Energy Sector (NYSEARCA:IYE) ETF seeks to track the Dow Jones U.S. Oil & Gas Index, which consists of U.S. equities in the energy sector.
Within IYE are various energy companies, including the likes of pipelines, oil drillers, and oil suppliers. This is one of the best dividend ETFs to consider owning in the energy sector, thanks to President Donald Trump’s current plans regarding the possession and transit of oil in the U.S.
Also part of Trump’s plan is to move away from renewable energy, which could see bad returns for these companies down the road. The great news for investors as IYE has no exposure to renewable energy.
The companies that are held within the IYE ETF could see price appreciation over time due to increased demand. In the meantime, there is a 2.82% dividend yield to be earned, based on the trading price of $40.48.