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 significantly outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are ONEQ, SYLD, and TDV.
- The top holdings of these ETFs are Apple Inc., Rent-A-Center Inc., and PetMed Express Inc., 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.
There are 114 dividend ETFs that trade in the U.S., 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 outperformed the S&P 500's total return of 20.8%, as of February 2, 2021. The best-performing dividend ETF, based on performance over the past year, is the Fidelity NASDAQ Composite Index Track (ONEQ). We examine the top 3 best dividend ETFs below. All numbers below are as of February 3, 2021.
- Performance over 1-Year: 48.1%
- Expense Ratio: 0.21%
- Annual Dividend Yield: 0.69%
- 3-Month Average Daily Volume: 40,662
- Assets Under Management: $3.8 billion
- Inception Date: September 25, 2003
- Issuer: Fidelity
ONEQ tracks the Nasdaq Composite Index, a market capitalization-weighted index of more than 2,500 common equities listed on the Nasdaq stock exchange. The ETF normally invests a minimum of 80% of its assets in stocks included in the index. It is comprised of more than 1,000 holdings of mostly U.S. stocks, but also provides some international exposure. The fund is primarily focused on large-cap growth stocks and is heavily skewed towards the tech sector. Its top three holdings include Apple Inc. (AAPL), a provider of mobile communications, personal computers, media devices, and related software and services; Microsoft Corp. (MSFT), a provider of software, cloud computing, consumer electronics, and related products and services; and Amazon.com Inc. (AMZN), a provider of e-commerce, cloud computing, digital streaming, and other internet services.
- Performance over 1-Year: 41.2%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 2.16%
- 3-Month Average Daily Volume: 11,951
- Assets Under Management: $98.6 million
- Inception Date: May 14, 2013
- Issuer: Cambria
SYLD is an actively-managed ETF that uses a quantitative approach to select U.S. equities with high cash distribution characteristics. It screens for U.S. stocks with market capitalizations greater than $200 million. The fund is comprised of the 100 top-ranked companies based on dividend payments and net stock buybacks. It also screens for value and quality factors, such as low financial leverage. SYLD follows a blended strategy, investing in a mix of value and growth stocks. Its top three holdings include Rent-A-Center Inc. (RCII), a provider of furniture, electronic appliances, and accessories through flexible rental purchase agreements; Apple; and Toll Brothers Inc. (TOL), a builder of luxury homes.
- Performance over 1-Year: 33.5%
- Expense Ratio: 0.46%
- Annual Dividend Yield: 0.48%
- 3-Month Average Daily Volume: 6,546
- Assets Under Management: $94.6 million
- Inception Date: November 5, 2019
- Issuer: ProShares
TDV tracks the S&P Technology Dividend Aristocrats Index, an equal-weighted index designed to gauge the performance of companies within the S&P Total Market Index that have consistently increased dividends every year for at least seven years and are classified within the following sectors: information technology; internet & direct marketing retail; interactive home entertainment; or interactive media & services. The ETF provides exposure to well-established, technology-related companies with stable earnings, solid fundamentals, and strong histories of profit and growth. It is primarily focused on large-cap growth stocks. The fund's top three holdings include PetMed Express Inc. (PETS), a pet pharmaceutical company offering its products via telephone, fax, mail, and the Internet; Perspecta Inc. (PRSP), a provider of information technology services to governments; and Microsoft.
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