For investors looking to generate current returns from the equity portion of their portfolio, there is no shortage of exchange-traded products offering attractive dividend yields in the current environment. From ETFs linked to dividend-weighted indexes to those that focus on companies with stellar distribution histories to simply sector-specific funds in high yield corners of the market, there are dozens of options to choose from. Below, we profile 25 dividend ETF options [for more ETF ideas, sign up for our free ETF newsletter]:
1. 2x Monthly Leveraged Business Development Company ETN (BDCL)
Business development companies (BDCs) are a unique type of entity engaged in lending money to small and mid-sized companies and making various types of strategic investments. In order to maintain certain tax advantages, BDCs must pay out almost all of their current earnings–making this asset class an interesting option for yield-hungry investors.
BDCL is a monthly leveraged ETN, meaning that the already juicy yield is amplified further; with a current annual leveraged yield of about 14.5%, BDCL’s distribution potential is sure to turn some heads [see also 12 High-Yielding Commodities For 2012].
2. MLP ETFs / ETNs
Master limited partnerships (MLPs) generally maintain operations very unique from BDCs (these entities transport and store energy commodities), but offer a generally similar yield profile. In order to be eligible for tax advantages, MLPs must make hefty distributions, again translating into attractive dividend yields [see also Five Commodity MLPs With Sky High Yields].
There are seven ETFs in the MLPs ETFdb Category, including both ETNs and ETFs (the difference in the taxation of these vehicles can be significant). Another potentially intriguing option is the 2x Monthly Leveraged MLP ETN from UBS (MLPL), which boasts an effective leveraged yield of about 11.6%.
3. Vanguard Dividend Appreciation ETF (VIG)
Getting into the index underlying this ETF is no small task; VIG offers exposure to companies that have increased their dividends for at least ten consecutive years. While this strategy results in a collection of consistent dividends–Exxon, Coca-Cola, and IBM are among the largest holdings–it should be noted that it won’t necessarily maximize distribution yields. VIG has a 30 day SEC yield of about 2.1% [see Free Report: Everything You Need To Know About Commodity ETFs].
4. WisdomTree Total Dividend ETF (DTD)
This ETF offers broad-based exposure to U.S. equity markets, including more than 800 individual stocks. But DTD only includes companies that pay cash dividends–meaning that you won’t find Apple in this portfolio.
DTD is an alternative to cap-weighted ETFs, as the underlying index is a fundamentals-weighted benchmark that uses dividends paid to determine allocations to each security. The WisdomTree Dividend Index has a dividend yield of about 3.2%, considerably higher than other broad U.S. equity indexes [see High-Dividend ETF Plays].
5. iShares High Dividend Equity ETF (HDV)
This ETF seeks to replicate the Morningstar Dividend Yield Focus Index, a benchmark that includes about 75 companies and is tilted towards the health care and consumer goods sectors. The index consists of the stocks with the highest dividend yields from a universe deemed to maintain superior company quality and financial health. HDV currently has a 30 day SEC yield of about 3.4%.
6. iShares Dow Jones EPAC Select Dividend (IDV)
For investors seeking international exposure to dividend stocks, IDV is one of several options available. Linked to the Dow Jones EPAC Select Dividend Index, this ETF consists of primarily developed market companies with attractive distribution yields. IDV has a 30 day SEC yield of about 3.1%; by comparison, the MSCI EAFE Index Fund (EFA) comes in at about 1.5% [see IDV holdings].
7. ELEMENTS DJ High Yield Select ETN (DOD)
The exposure offered by DOD is unique and simple. In December, the 30 stocks in the Dow Jones Industrial Average are ranked by indicated annual dividend yield; the ten highest yields are selected to make up the underlying index. Of course the exposure offered is relatively easy for investors to replicate on their own, allowing them to save the 75 basis points in expenses charged by this ETN.
Note that DOD doesn’t trade very frequently; investors interested in this fund would be wide to use limit orders when establishing a position [see DOD vs. DIA: A Better Dow Jones ETF?].
8. WisdomTree Small Cap Dividend (DES)
Most ETFs on this list consist primarily of large cap stocks; DES offers a combination of small cap exposure and attractive current returns. Part of WisdomTree’s suite of dividend-weighted ETFs, DES is linked to an index designed to measure the performance of the small-capitalization segment of the U.S. dividend-paying market. The index consists of nearly 600 small cap companies, and has a dividend yield of about 4.3%–significantly higher than other small cap ETF options.
9. WisdomTree Mid Cap Dividend (DON)
This ETF is the mid cap counterpart to DES, offering exposure to mid-sized U.S. companies that pay dividends. The underlying WisdomTree MidCap Dividend Index consists of about 340 companies and has a dividend yield in the neighborhood of 3.4%. Real estate stocks and utilities combine to account for about 40% of total assets [see DON holdings].
10. WisdomTree Pacific ex-Japan Dividend Fund (DND)
This ETF offers targeted exposure to the economies of the Pacific, including Australia, Hong Kong, Singapore, and New Zealand. The underlying WisdomTree Pacific ex-Japan Dividend Index is a fundamentals-weighted benchmark including more than 300 companies from these four markets. DND is heavy in Australian banks and telecom companies, two sectors of the market that often offer the most attractive distribution yields [see Actionable ETF Trading Ideas].
The dividend yield on the index is more than 5%
11. PowerShares International Dividend Achievers (PID)
This ETF is similar to the aforementioned VIG–but with an international focus. PID seeks to replicate the International Dividend Achievers Index, a benchmark that consists of ex-U.S. stocks that have increased their annual dividend for five or more consecutive fiscal years. PID can be thought of as a dividend-heavy alternative to EAFE funds such as EFA or VEA, offering exposure to developed economies outside the U.S. (though PID includes Canada, which is absent from many international ETFs).
PID has heaviest allocations in the UK and Canada, and in total includes about 65 stocks from more than a dozen countries. Again, it’s important to note that the index is constructed to include consistent dividend payers, and not necessarily the highest absolute yields. Still, PID has a relatively high 12 month yield of 2.9%.
12. SPDR S&P International Dividend ETF (DWX)
This ETF also offers exposure to international dividend payers; DWX holds about 120 stocks from more than two dozen different countries, including both developed and emerging markets. The underlying S&P International Dividend Opportunities Index has a dividend yield of approximately 7.75%, one of the highest distribution yields among international equity ETFs.
DWX is tilted towards financial, telecom, and utilities firms; these three sectors make up about 60% of the underlying portfolio.
13. SPDR S&P Emerging Markets Dividend ETF (EDIV)
Both PID and DWX focus primarily on developed markets outside the U.S.; EDIV is one option for investors looking to access dividend payers in emerging markets. This ETF makes its heaviest country allocations to Brazil, Taiwan, South Africa, and the Czech Republic, with the balance of the portfolio spread across a dozen more emerging economies.
The underlying S&P Emerging Markets Dividend Opportunities Index has a dividend yield of about 6.2%. By comparison, the dividend yield on the index to which the SPDR Emerging Markets ETF (GMM) is linked is about 2.4%.
14. Emerging Markets SmallCap Dividend Fund (DGS)
DGS is another unique option for emerging markets exposure; while EDIV consists primarily of large and mid cap stocks, this ETF focuses on small cap equities in Taiwan, South Korea, South Africa, Thailand, and other developing economies [also read Does South Korea Belong In Your Emerging Markets ETF?].
DGS seeks to replicate the WisdomTree Emerging Markets SmallCap Dividend Index, a dividend-weighted benchmark that includes more than 500 individual securities and has a dividend yield of about 4.5%.
15. Utilities SPDR (XLU)
XLU is the most popular of the 21 ETFs in the Utilities ETFdb Category, offering exposure to a corner of the U.S. market that has historically exhibited relatively low volatility and high distribution yields. The underlying index consists of about 35 utilities firms, including electric utilities, independent power producers, and gas utilities. Many of the component stocks have track records of stable dividend payments, and the index has a dividend yield of nearly 4%.
16. iShares S&P Global Telecommunications Sector Index Fund (IXP)
Telecom stocks are also known for relative stability and often attractive distributions; IXP is one of ten ETFs in the Telecom ETFdb Category that are popular with investors looking for exposure to companies such as AT&T, Vodafone, and Verizon.
IXP has a 12-month yield of almost 4%, considerably higher than most broad-based equity ETFs. There are also a number of U.S-only telecom ETFs, though the addition of international allocations generally results in a higher dividend yield [ETF Dividend Ideas For 2011].
17. iShares FTSE NAREIT Real Estate 50 Index Fund (FTY)
Because REITs must pay out a certain percentage of their earnings in order to maintain certain tax advantages, this asset class has long been a popular destination for investors looking to generate current returns. FTY is one of 16 ETFs in the Real Estate ETFdb Category, investing in about 50 of the largest U.S. REITs. With a 12-month yield of about 3.2% and a 30 day SEC yield in the neighborhood of 7.5%, this fund is certainly appealing to investors who are focused on dividends.
18. PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY)
This ETF is another potentially intriguing option for real estate exposure, focusing on a relatively narrow basket of REITs that offer significant distributions. The underlying KBW Premium Yield Equity REIT Index is unique in that it utilizes a dividend-weighted methodology, which results in a focus on real estate companies with the most significant distributions.
The distribution yield on KBWY is about 5.5%, considerably higher than most other real estate ETF options.
19. SPDR Dow Jones International Real Estate ETF (RWX)
There are also a number of ETFs in the Global Real Estate ETFdb Category that offer exposure to REITs outside of the U.S. RWX is the most popular ETF choice in this asset class; this ETF seeks to replicate an index consisting of about 125 stocks in 18 different countries.
The underlying Dow Jones Global ex-U.S. Select Real Estate Securities Index has a dividend yield of about 3.8%.
20. WisdomTree Middle East Dividend Fund (GULF)
When considering options for attractive dividends, the Middle East may not be the first region that comes to mind. But GULF is perhaps one of the best kept secrets under the dividend ETF umbrella; this fund has only about $20 million in assets, and is linked to an index with a dividend yield of about 9%.
The underlying WisdomTree Middle East Dividend Index is a fundamentally weighted benchmark that consists of about 70 stocks from Qatar, the UAE, Kuwait, Morocco, Egypt, Oman, and Jordan. There is a heavy tilt towards telecom and banking stocks, as these two sectors account for almost 70% of assets.
GULF has struggled in 2011 thanks to the uncertainty resulting from a wave of uprisings in the region, potentially making for an attractive entry point to a fund with a juicy dividend yield [Never Judge An ETF By Its Cover].
21. PowerShares KBW High Dividend Yield Financial Portfolio (KBWD)
Financial stocks often have a heavy allocation among dividend funds, as banks and similar institutions are generally a source of stable distributions (despite the turbulence of recent years). But most financial ETFs don’t come close to matching KBWD in terms of current return potential.
This fund is linked to the KBW Financial Sector Dividend Yield Index, which uses a dividend yield weighted methodology and includes between 24 and 40 financial companies. Recently, the distribution yield for this fund came in at an eye-popping 9.4%.
22. Guggenheim Multi-Asset Income ETF (CVY)
CVY is a somewhat unique ETF, seeking to replicate an index that includes securities deemed to offer potentially high income and superior risk/return profiles. The CVY portfolio consists of a number of different types of assets, including common stocks, REITs, closed end funds, MLPs, preferred stocks, and Canadian royalty trusts [Worried About Fixed Income Bubbles? Try A Dividend ETF].
Annualizing CVY’s most recent quarterly distribution results in a dividend yield of about 4.8%.
23. Guggenheim International Multi-Asset Income ETF (HGI)
This ETF is the international counterpart to CVY, offering exposure to a variety of securities that combine to feature a hefty distribution yield. The underlying index utilizes multi-factor proprietary selection rules to identify those stocks that offer the greatest potential from a yield and risk/return perspective, with the goal of outperforming the MSCI EAFE Index.
Based on the most recent quarterly distribution, HGI also maintains a dividend yield in the neighborhood of 4.8% [also read How To Find The Right Dividend ETF].
24. S&P U.S. Preferred Stock Index Fund (PFF)
Preferred stock has long been an appealing asset class for investors looking to enhance current returns, and there are a number of ETFs that offer exposure to this asset class. PFF is by far the most popular ETF option with almost $8 billion in AUM.
This ETF seeks to replicate the S&P U.S. Preferred Stock Index, and holds almost 250 individual securities from primarily financial companies. PFF has a 12-month yield of about 7.2%.
25. Global X Canada Preferred Stock ETF (CNPF)
For investors interested in the attractive current returns available from preferred stock but hesitant to establish significant exposure to U.S. banking institutions, CNPF may be an appealing option. This ETF seeks to replicate the Solactive Canada Preferred Index, which includes about 60 preferred stock issues trading on the Toronto Stock Exchange. Financials account for about three quarters of the underlying portfolio, with the remainder spread across energy, telecom, utilities, and consumer companies.
Disclosure: No positions at time of writing.
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