Dividend exchange-traded funds (ETFs) are designed to invest in a basket of high-dividend-paying stocks. These high-dividend stocks tend to be associated with companies that have a strong history of dividend increases, and that usually means bigger, less-risky, blue-chip companies. They may be either domestic or international and span a range of economic sectors and industries, including International Business Machines Corp. (IBM), 3M Co. (MMM), and Nike Inc. (NKE).
- The top three dividend ETFs have had a mixed performance relative to the broader market over the past year.
- The ETFs with the best 1-year trailing total return are SPHQ, DNL, and VIG.
- The top holdings of these ETFs are Apple Inc., Novo Nordisk A/S, and Microsoft Corp., respectively.
Dividend ETFs often are favored by more risk-averse, income-seeking investors. They also are used by investors to balance riskier investments in their portfolio. In addition to offering a regular income stream, these ETFs generally offer much lower management expense ratios (MERs) than dividend-focused mutual funds.
The dividend ETF universe is comprised of about 96 funds, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). Over the past 12 months, the top three dividend ETFs have had a mixed performance relative to the S&P's total return of 9.4%, as of October 29, 2020. The best-performing dividend ETF, based on performance over the past year, is the Invesco S&P 500 Quality ETF (SPHQ). We examine the top 3 best dividend ETFs below. All numbers below are as of November 2, 2020.
- 1-Year Trailing Total Return: 10.1%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 1.73%
- 3-Month Average Daily Volume: 516,514
- Assets Under Management: $2.2 billion
- Inception Date: December 6, 2005
- Issuer: Invesco
SPHQ is a large-cap ETF focused primarily on U.S. growth stocks and offers investors an alternative approach to other funds that track the S&P 500 Index. The fund tracks the S&P 500 High Quality Rankings Index, which provides exposure to S&P 500 stocks of companies offering stable earnings and dividends and with the potential for long-term growth. The index gives each company a quality score, which is calculated based on return on equity, accruals ratio and the financial leverage ratio. The ETF may be appealing to investors looking for lower volatility. The fund's top three holdings include Apple Inc. (AAPL), the global technology company focused on consumer devices and services; NVIDIA Corp. (NVDA), the maker of computer chips and graphics processors; and Procter & Gamble Co. (PG), the consumer products giant.
- 1-Year Trailing Total Return: 9.4%
- Expense Ratio: 0.58%
- Annual Dividend Yield: 2.10%
- 3-Month Average Daily Volume: 21,539
- Assets Under Management: $230.1 million
- Inception Date: June 16, 2006
- Issuer: WisdomTree
DNL tracks the WisdomTree World ex-US Growth Index, which is a fundamentally weighted index focused on large-cap equities in emerging and developed markets, including dividend-paying companies. The index uses a growth score to select the top 30% of the 1000 biggest companies by market value. The ETF uses this index to select a relatively small number of companies that offer both attractive dividends and growth. The fund's expense ratio is significantly higher than many ETFs in its category. The fund's top three holdings include Novo Nordisk A/S (NOVO.B:CPH), a Danish pharmaceutical company; British American Tobacco PLC (BATS:LSE), a U.K.-based tobacco manufacturer; and Fortescue Metals Group Ltd. (FMG:AUX), an Australia-based iron ore exploration and production company.
- 1-Year Trailing Total Return: 8.2%
- Expense Ratio: 0.06%
- Annual Dividend Yield: 1.78%
- 3-Month Average Daily Volume: 1,114,565
- Assets Under Management: $47.0 billion
- Inception Date: April 27, 2006
- Issuer: Vanguard
VIG is a large-cap fund targeting growth equities through the NASDAQ US Dividend Achievers Select Index. The roughly 180-stock index tracks stocks which have increased their dividends for at least 10 consecutive years, making the fund a strong option for investors with a longterm horizon. The fund's top three holdings include Microsoft Corp. (MSFT), a multinational technology company focused primarily on software and cloud services; Walmart Inc. (WMT), a multinational retail corporation operating a chain of discount stores; and Procter & Gamble.
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