Dividend exchange-traded funds (ETFs) are designed to invest in a basket of high-dividend-paying stocks. These stocks may be either domestic or international and may span a range of economic sectors and industries. However, high-dividend-paying stocks tend to be associated with companies that have a strong history of dividend increases and that usually means bigger, less-risky, blue-chip firms. Such companies include Intel Corp. (INTC), Procter & Gamble Co. (PG), and Nike Inc. (NKE).
Dividend ETFs often are favored by more risk-averse, income-seeking investors, but also are used by investors who want 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 , for example.
Investopedia looked at 110 dividend ETFs in order to highlight the three top funds, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The best-performing dividend ETF in the past year is the Fidelity NASDAQ Composite Index Track (ONEQ). All of the figures mentioned were retrieved on May 9th, 2020.
- Performance over 1-Year: 16.91%
- Expense Ratio: 0.21%
- Annual Dividend Yield: 1.99%
- 3-Month Avg. Daily Trading Volume: 96,597
- Assets Under Management: $2,443.3 million
- Inception Date: September 25, 2003
- Issuing Company: Fidelity
ONEQ is a broad-based equity index that is heavily weighted toward American equities and tracks the Nasdaq Composite index, as its name indicates. The fund includes over 2,000 holdings in a broad range of sectors, but it focuses heavily on large-cap technology companies. ONEQ’s three largest holdings are Microsoft Corp. (MSFT), Apple Inc. (AAPL), and Amazon.com Inc. (AMZN), collectively accounting for nearly 30% of the fund’s combined assets.
- Performance over 1-Year: 7.02%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 1.92%
- 3-Month Avg. Daily Trading Volume: 1,136,833
- Assets Under Management: $1,757 million
- Inception Date: December 6th, 2005
- Issuing Company: Invesco
SPHQ offers investors an alternative approach to other funds that track the S&P 500 Index. The ETF focuses on S&P 500 stocks in a broad range of sectors that are seen as providing long-term growth and stability in earnings and dividends. Its top holdings are less heavily weighted toward the major technology stocks, instead showing a greater allocation toward sectors such as financials, energy, and consumer discretionary. The ETF also may be considered by investors seeking less volatility.
- Performance over 1-Year: 6.37%
- Expense Ratio: 0.58%
- Annual Dividend Yield: 2.51%
- 3-Month Avg. Daily Trading Volume: 42,686
- Assets Under Management: $122.1 million
- Inception Date: June 16th, 2006
- Issuing Company: 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 thus selects companies that also offer attractive dividends while offering growth.
The ETFs three largest holdings, are the Danish pharmaceutical company, Novo Nordisk (NOVO.B); the U.K.-based tobacco manufacturer, British American Tobacco PLC (BATS); and the Chinese infrastructure development company, China Overseas Land & Investment Ltd. (688). The three comprise about 18% of the fund's assets.