The 10 Most Popular Dividend ETFs: VIG, VYM, SDY and More2015-06-24
In the world of exchange-traded products, dividend ETFs have become popular in recent years thanks to their low costs, transparency, and wide array of dividend-focused strategies.
Whether investors are looking for fine-tuned exposure to a particular region, or for companies that have increased dividends for more than 20 years, or are simply hoping to cast a wider net over the space, there are more than 70 dividend-focused ETFs from which to choose. Below, we highlight the 10 largest dividend ETFs, and everything investors need to know about them (data as of May 12, 2015):
The Dividend King: Dividend Appreciation ETF (VIG )
- Assets: $20.7 billion
- Expense Ratio: 0.10%
- Dividend Yield: 2.10%
This Vangaurd offering is the largest dividend-focused ETF on the market, with more than $18 billion in total assets under management. VIG focuses on dividend-paying companies that have a history of increasing dividends for at least 10 consecutive years [see also Dividend ETF Special: 25 Equity ETFs With Attractive Distribution Yields].
Consisting of nearly 150 stocks, VIG’s portfolio is nicely spread out across a wide array of sectors, including consumer defensive, industrials, consumer cyclical, and energy equities. Top holdings include PepsiCo Inc. (PEP), Procter & Gamble (PG), and Wal-Mart (WMT).
The Veteran: Select Dividend ETF (DVY )
- Assets: $14.7 billion
- Expense Ratio: 0.40%
- Dividend Yield: 3.06%
Launched in 2003, this veteran fund tracks the Dow Jones U.S. Select Dividend Index – a yield-weighted benchmark that screens stocks by dividend-per-share growth rate, dividend-payout percentage rate, and average daily dollar trading volume.
DVY’s top holdings include Entergy Corp. (ETR), Lockheed Martin Corporation (LMT), Chevron (CVX), and Philip Morris International, Inc. (PM). Investors should note that nearly one-third of the fund’s total holdings are allocated to utilities equities. But unlike most dividend-focused funds, DVY has meaningful exposure to mid- and small-cap stocks.
The Aristocrat: SPDR S&P Dividend ETF (SDY )
- Assets: $13.6 billion
- Expense Ratio: 0.35%
- Dividend Yield: 1.64%
This State Street offering tracks the S&P High Yield Dividend Aristocrats Index, which comprises the 50 highest dividend-yielding constituents of the S&P Composite 1500 Index that have increased dividends every year for at least 25 consecutive years.
Given SDY’s methodology, the fund offers investors access to stocks that have both capital growth and dividend income characteristics. Like DVY, SDY also has meaningful exposure to mid-cap stocks, which account for more than one-third of the fund’s total assets. And though SDY has only approximately 95 individual holdings, no single security receives more than a 3.1% weighting, making it relatively well-balanced [see also How To Pick The Right ETF Every Time].
The A+ Rated: High Dividend Yield ETF (VYM )
- Assets: $11.3 billion
- Expense Ratio: 0.10%
- Dividend Yield: 2.81%
Another Vanguard dividend ETF is at the top of this list. VYM has some overlap with VIG, but implements a slightly different dividend-centric strategy. Instead of focusing on the most consistent dividend payer, the fund picks those U.S. stocks with the highest yields. As a result, VYM will generally have a higher distribution yield, but will include stocks with shorter histories of paying out money to their shareholders.
The index this fund follows is derived from the U.S. component of the FTSE Global Equity Index Services. VYM’s top holdings include Exxon Mobil (XOM), General Electric (GE), Chevron (CVX), and Johnson & Johnson (JNJ).
The Selective Portfolio: High Dividend ETF (HDV )
- Assets: $4.9 billion
- Expense Ratio: 0.12%
- Dividend Yield: 3.36%
This iShares offering tracks the Morningstar Dividend Yield Focus Index, which is designed to measure the performance of a select group of U.S. securities that have provided relatively high dividend yields on a consistent basis. As a result of the methodology HDV only has approximately 75 individual holdings, with approximately 60% of total assets allocated to the top 10 holdings such as AT&T (T), Chevron (CVX), and Johnson & Johnson (JNJ).
HDV is primarily made up of giant-cap firms, the majority of which are from the health care, consumer defensive, communication services, and utilities industries [see also 10 Questions About ETFs You’ve Been Too Afraid To Ask].
The High Yielder: International Select Dividend ETF (IDV )
- Assets: $4.6 billion
- Expense Ratio: 0.50%
- Dividend Yield: 3.98%
This ETF boasts one of the highest dividend yields on this list and is home to over $4 billion in AUM. IDV tracks the Dow Jones EPAC Select Dividend Index, which measures the performance of a select group of companies that have provided relatively high dividend yields on a consistent basis over time.
In terms of geographic diversification, equities from Australia make up roughly 30% of IDV’s total assets. Dividend-paying stocks from the United Kingdom and France are also given meaningful exposure.
The Cheapest: US Dividend Equity ETF (SCHD )
- Assets: $2.8 billion
- Expense Ratio: 0.07%
- Dividend Yield: 2.65%
With an expense ratio of a mere seven basis points, Schwab’s SCHD is the cheapest ETF on the list. The fund’s underlying index is designed to measure the performance of high dividend-yielding stocks issued by U.S. companies that have a record of consistently paying dividends. The companies are selected for fundamental strength relative to their peers based on financial ratios [see The Hidden Costs of ETF Investing].
The fund allocates nearly 50% of its assets to consumer defensive and industrial stocks, while the technology, consumer cyclical, energy, and health care industries also receive meaningful exposure. Top holdings include Johnson & Johnson (JNJ), Microsoft (MSFT), Coca-Cola (KO), and Exxon Mobil (XOM).
The Emerging Market Targeted: Emerging Markets High-Yielding Equity Fund (DEM )
- Assets: $2.4 billion
- Expense Ratio: 0.63%
- Dividend Yield: 4.54%
This WisdomTree fund tracks the WisdomTree Emerging Markets Equity Income Index, which measures the performance of the highest dividend-yielding stocks from emerging market countries. DEM consists of over 300 individual holdings, the majority of which are financial services, basic materials, energy, and communication services equities.
Nearly 25% of DEM’s total assets are allocated to Chinese dividend-paying stocks, though equities from Russia, Taiwan, Brazil and South Africa also receive meaningful exposure. The fund also limits its exposure to mid-, small-, and micro-cap firms, a good thing for investors wanting to mitigate the higher risks associated with smaller emerging market companies.
The Large Cap Twist: LargeCap Dividend Fund (DLN )
- Assets: $2.0 billion
- Expense Ratio: 0.28%
- Dividend Yield: 2.22%
Another WisdomTree offering, DLN tracks the WisdomTree LargeCap Dividend Index, a fundamentally-weighted index that measures the performance of the large-capitalization segment of the U.S. dividend-paying market. The fund invests in roughly 300 individual securities, the majority of which are giant-cap firms.
Exposure is nicely spread out across a variety of sectors, including technology, consumer defensive, health care, industrials, and energy. Top holdings include Apple (AAPL), Exxon Mobil (XOM), and Microsoft (MSFT).
The Mid Cap Twist: MidCap Dividend Fund (DON )
- Assets: $1.6 billion
- Expense Ratio: 0.38%
- Dividend Yield: 2.18%
Yet another WisdomTree product on this list, DON employs a similar strategy to DLN, but instead focuses on mid-cap stocks. The fund has just over 400 holdings with no single index member receiving a weight of more than 1.5%.
DON does a relatively good job of spreading its exposure across market segments, but it does feature consumer cyclicals a bit more than any other.
The Bottom Line
Dividend ETFs are some of the most popular funds on Wall Street and with good reason; a solid and stable yield can be a key backbone for any portfolio. Investors looking to get further into the dividend world may want to take a closer look at the funds mentioned above.
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Disclosure: No positions at time of writing.