Six Best High Dividend ETFs: Main Similarities and Differences
Dividend ETFs offer excellent protection for investors across volatile market cycles and provide great portfolio diversification. However, not all dividend ETFs are equal and best performing, and there are several reasons for that. In this article, we will attempt to single out a few most important factors in making a good decision about investing in a dividend-focused ETF.
We will separately focus on the preferreds’ dividend ETFs’ opportunities. The main reason to single them out is obvious: it is well-known that preference shares pay out higher dividends than common shares. However, this approach can or cannot be warranted — depending on what we look for in a guaranteed yield. As we know, it is completely lawful for even the dividend aristocrats to stop paying common share dividends. However, it is unlikely in terms of the preferreds’ dividends, since that type of stock will be automatically converted into a common (voting) stock once ceasing paying out dividends.
Regarding high-dividend stock ETFs, there are a few standout options worth considering.
1. Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation Index Fund ETF Shares (NYSE:VIG) (VIG) focuses on the most committed dividend-paying stocks with track records of consistently increasing their payouts over time. The fund tracks the S&P Dividend Aristocrats Index, which includes companies that have increased their dividends for at least 10 consecutive years. VIG has a proven track record of providing stable dividends and outperforming the broader market. We’ll discuss its comparative performance at the end of this research article.
2. iShares Select Dividend ETF (DVY)
The iShares Select Dividend ETF (NASDAQ:DVY) is another popular option for dividend focused investors. The fund tracks the Dow Jones U.S. Select Dividend Index, which includes high dividend-yielding stocks with a proven track record of consistent dividend payments. DVY offers exposure to a rather diverse range of sectors, including financials, utilities, and telecommunications. We’ll discuss its comparative performance at the end of this research article.
3. SPDR S&P Dividend ETF
The SPDR S&P Dividend ETF (NYSE:SDY) offers exposure to a diversified portfolio of dividend-paying stocks in the S&P 500 Index. Unlike its peers, this fund exclusively focuses on large-cap companies that can be attributed to the dividend aristocrats category. This means this ETF offers an improved combination of nearly flawless stock liquidity with enhanced fixed payouts. In other words, SDY aims to provide a steady stream of income while maintaining a balance between growth and income. We’ll discuss its comparative performance at the end of this research article.
4. Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield Index Fund ETF Shares (NYSE:VYM) (VYM) invests in dividend-paying stocks across various sectors. The fund tracks the FTSE High Dividend Yield Index, which includes large-cap companies that have consistently paid higher dividends compared to their peers. VYM aims to provide a combination of capital growth and regular dividend income. We’ll discuss its comparative performance at the end of this research article.
5. Invesco High Dividend Achievers ETF (HDV)
The Invesco KBW High Dividend Yield Financial ETF (NASDAQ:KBWD) (HDV) also focuses on companies that have consistently increased their dividends for at least 10 consecutive years. The fund tracks the NASDAQ U.S. Dividend Achievers Select Index, which includes mid- and large-cap stocks. HDV aims to deliver high dividend yields while maintaining stability through diversification. We’ll discuss its comparative performance at the end of this research article.
6. The Schwab U.S. Dividend Stock ETF (SCHD)
The Schwab U.S. Dividend Equity ETF™ (NYSE:SCHD) (SCHD) should continue to deliver long-term risk-adjusted returns better than the Russell 1000 value index, thanks to a prudent, transparent, risk-sensitive approach.
The Dow Jones U.S. Dividend 100 index, which the fund supports, includes 10 stocks that have paid dividends for at least 100 (wow!) consecutive years, and industry companies such as Coca-Cola (NYSE:KO) and Home Depot (NYSE:HD) meet these requirements and occupy leading positions in their portfolios. This fund usually takes a defensive position, since dividend-paying companies with healthy balance sheets tend to be more isolated from market changes than large players and low-quality competitors.
Strict stock selection criteria allow this fund to effectively use quality factors having been historically associated with elevated returns. The Dow Jones U.S. Dividend 100 index comfortably surpasses the Russell1000 value index in terms of profitability indicators such as return on invested capital (ROIC). Having been launched in March 2024, the Fund offers portfolio, which is almost 65% composed of shares with a broad Morningstar economic rating. We’ll discuss its comparative performance at the end of this research article.Which High Dividend ETFs are Best Performers in 2024?
The above listed six high dividend stock ETFs offer distinct investment profiles and appeal to different investor preferences. It's essential to carefully consider one’s precise investment goals and risk tolerance before selecting one or several of these ETFs. Now let’s compare them in respect to their relative performances.
Chart 1. Comparative Performance of “Big Six” High-Dividend ETFs
Based on the above chart, the clear year-to-date (YTD) winner is DVY, iShares Select Dividend ETF, which managed to deliver nearly 22% return (on top of the applicable dividends paid) vs. S&P 500’s 26% (no dividends, since it’s an index, not an ETF). The second place should be granted to VYM, Vanguard High Dividend Yield ETF, with its still-respectable 18.5% YTD return (plus accumulated dividend). This is very good news for conservative investors, demonstrating that high stock liquidity does not contradict receiving the enhanced dividend yields.