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. These companies include International Business Machines Corp. (IBM), 3M Co. (MMM), and Nike Inc. (NKE).
- The top three dividend ETFs have outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are DNL, TDIV, and SPHQ.
- The top holdings of these ETFs are Novo Nordisk for the first ETF, and Apple for the next two funds, 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 95 ETFs, 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 17.4%, as of August 10, 2020. The S&P 500 index's dividend yield was 1.82%, as of the end of July. The best-performing dividend ETF, based on performance over the past year, is the WisdomTree Global ex-U.S. Quality Dividend Growth Fund (DNL). We examine the top 3 best dividend ETFs below. All numbers below are as of August 11, 2020.
- Performance over 1-Year: 19.8%
- Expense Ratio: 0.58%
- Annual Dividend Yield: 1.80%
- 3-Month Average Daily Volume: 19,482
- Assets Under Management: $191.2 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 companies that offer both attractive dividends and growth. The fund's top three holdings include Novo Nordisk A/S (NOVO.B:DC), a Danish pharmaceutical company; British American Tobacco PLC (BATS), a U.K.-based tobacco manufacturer; and Fortescue Metals Group Ltd. (FMG:AU), an Australia-based iron ore exploration and production company.
- Performance over 1-Year: 18.9%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 2.20%
- 3-Month Average Daily Volume: 108,306
- Assets Under Management: $1.3 billion
- Inception Date: August 14, 2012
- Issuer: First Trust
TDIV tracks the NASDAQ Technology Dividend Index, which includes up to 100 technology and telecommunications companies that pay a regular common dividend and have a minimum market capitalization of $500 million. The fund is a large-cap ETF that follows a blended strategy, investing in both growth and value stocks. TDIV is primarily focused on U.S. equities. The fund's top three holdings include Apple Inc. (AAPL), a multinational technology company focused on consumer devices and services; Microsoft Corp. (MSFT), a multinational technology company focused primarily on software and cloud services; and Cisco Systems Inc. (CSCO), a multinational technology and telecommunications company.
- Performance over 1-Year: 18.0%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 1.76%
- 3-Month Average Daily Volume: 933,874
- Assets Under Management: $2.1 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 ETF may be appealing to investors looking for lower volatility. The fund's top three holdings include Apple; Procter & Gamble Co. (PG), a multinational consumer goods company; and Microsoft.