After the market volatility caused by the pandemic, many investors are looking to exchange-traded funds to reposition their portfolios for lower risk. Diversified dividend funds are a great tool for that because companies that offer dividends to shareholders must have substantial profits to support their payout and these regular distributions provide a reliable flow of cash amid other uncertainties. The following dividend funds are great for novice investors looking to add high-dividend ETFs to their holdings, as well as a way to cut out hassle for veterans with a specific income goal. If you want to avoid buying individual dividend stocks – which can move big on bad headlines – take a look at these nine funds that all offer slightly different ways to invest for dividends in a diversified and low-stress way.
Vanguard Dividend Appreciation ETF
The best dividend ETF with the biggest size is VIG (VIG), Vanguard's flagship equity income fund that commands nearly $50 billion in assets under management. The fund holds some 180 of the top dividend stocks in the U.S., from consumer staples firms like Procter & Gamble (PG) to tech giant Microsoft (MSFT). You're assuredly biased toward larger stocks, with a median market value of nearly $100 billion for each of these stocks. For low-risk dividend investors, however, that bias may not be seen as much of a detriment.
Current yield: 2.0%
ProShares S&P 500 Aristocrats
Dividend aristocrats (NOBL) are companies that have increased their dividend payouts for 25 consecutive years or more, proving they have a great pedigree as income stocks. It also hints at a commitment to raising dividends over the long term, since this is not a static title and demands continued increases every 12 months or else stocks fall off the list. You may think that only entrenched mega-caps could make it on this list, as evidenced by names like oil giant Exxon Mobil (XOM). However, smaller picks like regional bank People's United Financial (PBCT) also make the cut, adding some variety to this list of more than 60 total holdings.
Current yield: 2.4%
SPDR S&P Dividend ETF
VIG may offer the biggest dividend stocks, but you're not getting much more income and taking on more risk than you would with government bonds. A decent alternative, then, is the SPDR S&P Dividend ETF (SDY). The fund has a similar makeup of large caps but a much better yield – and with a pretty impressive scale itself at roughly $15 billion in assets. SDY achieves this by avoiding top-heavy weightings. Though it has fewer holdings at about 120 components, SDY doesn't have more than roughly 2.5% in a single holding – and regularly rebalances to keep it that way.
Current yield: 3.2%
Schwab U.S. Dividend Equity ETF
On par with Vanguard for one of the cheapest dividend ETFs is the SCHD fund (SCHD), which charges just 0.06% annually in fees – a paltry $6 each year on every $10,000 you invest. On top of that low-cost structure, this ETF also offers significantly higher payouts than the Vanguard fund. With a focused list of about 100 holdings, SCHD achieves this yield by overweighting in names that pay more. Right now, top positions include names such as drugmaker Pfizer (PFE) that pay much more in dividends than the typical blue-chip stock.
Current yield: 3.6%
iShares International Select Dividend ETF
If you want to look beyond domestic stocks, or if you're looking for an "ex-U.S." strategy to supplement existing American income plays in your portfolio, then this international iShares fund (IDV) offers a great swath of stocks from around the globe. This ETF's strategy, which excludes U.S. corporations, makes it a great way to add diversification to any portfolio. And lest you worry you are trading the stability of U.S. blue chips for unproven international names, IDV is populated with companies you're surely familiar with, such as Royal Dutch Shell (RDS/A) and British American Tobacco (BTI). These stocks are just as stable as their U.S. peers – and as the yield indicates, they often pay significantly higher dividends.
Current yield: 7.1%
iShares Core Dividend Growth ETF
Among the top funds from the top ETF families is DGRO (DGRO), the smallest pick among these leaders with "only" about $9 billion in total assets, but the largest when it comes to total holdings with a portfolio of about 480 different stocks. Perhaps surprisingly, this doesn't make the typical stock that much smaller than the other funds. That's because DGRO includes larger stocks that may not make it into the other funds, such as tech giant Apple (AAPL) – which does indeed pay a dividend, but it's a pretty modest one when you measure by yield. That drags down the average payout, but it makes for a much more diverse fund.
Current yield: 2.6%
WisdomTree U.S. MidCap Dividend ETF
Going smaller than some of these funds, DON (DON) focuses on "Goldilocks" stocks that are neither so big they are stagnant nor so small they are overly risky. And, of course, the mid-cap stocks in this ETF also have to pay a decent dividend, too. The list of about 350 stocks in this WisdomTree fund includes familiar midsize picks like Campbell Soup (CPB) and cloud computing and data firm NetApp (NTAP), plus a helping of stocks you may not otherwise have in your portfolio.
Current yield: 3.8%
First Trust Value Line Dividend Index Fund
A more tactical fund, FVD (FVD) is an active ETF with a higher turnover rate as it chases sectors where it perceives the most value and upside potential. Consider it a hybrid of an equity fund seeking share appreciation and your traditional dividend ETF that focuses on sleepy income plays. FVD is way above average in cost – with 0.7% in expenses, or $70 a year on each $10,000 invested. It's also more risky since it's not as concerned with the buy-and-hold approach as other funds. However, for those looking for income but not willing to sacrifice capital gains, FVD is a popular choice. And since it has more than $8 billion in assets, investors picking this fund will certainly not be alone.
Current yield: 2.9%
Invesco S&P 500 High Dividend Low Volatility ETF
One of the more sophisticated income ETFs, SPHD (SPHD) is focused on just 50 stocks that offer above-average payouts but also lower share-price volatility over the last 12 months when compared with their peers. The result is a pretty eclectic mix, from traditional blue-chip telecom AT&T (T) to lesser-known natural gas player Williams Companies (WMB). With a yield that's roughly twice the typical stock in the S&P 500 (.SPX), however, it's hard to argue with the methodology. Low-risk investors may want to pay particular attention to SPHD as a fund that could stay strong if the going gets tough in the months ahead.
Current yield: 5.6%
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