All the Best Dividends ETFs

Best Dividend ETF for 2015

Dividends is one of the most powerful factors in investment results over the long. The compounding factor of dividends overtime can be a significant portion of overall results. Chart below from WisdomTree show buying the highest dividend paying stocks can outperform the broader market by a large margin and also at a lower risk!

Dividend Stocks and Long Term Relative Performance

Long Term Dividend ETF Performance

Long Term Dividend ETF Performance

Record low interest rates has also put pressure on income focused investors. In some instances, low bond yields will not compensate investors for taking the credit risk. In the bid to chase for yield, dividend ETFs has come into investors focus. For high risk investors, inverse bond funds can be used to hedge rise in interest rates.

Not all dividend exchange traded funds are created equal. There are many dividend index funds in the market for investors. Some are similar, most has a distinct ‘twist’ in deciding which company are included in the fund. Below is a list of dividend focused ETFs and shows various approaches investors can use in capturing the dividends.

 

Dividend ETF List

Fund
Fund Name
Yield
VIG
Vanguard Dividend Appreciation ETF
2.08%
DVY
iShares Dow Jones Select Dividend Index Fund
3.00%
DEM
WisdomTree Emerging Markets High-Yielding Equity Fund
5.61%
DGS
WisdomTree Emerging Markets SmallCap Dividend Fund
2.92%
SDOG
ALPS Sector Dividend Dogs ETF
4.08%
DLN
WisdomTree LargeCap Dividend Fund
2.45%
DES
WisdomTree SmallCap Dividend Fund
2.71%
IDV
iShares Dow Jones EPAC Select Dividend Fund
4.25%
PID
PowerShares International Dividend Achievers Portfolio
3.55%
DGS
WisdomTree Emerging Markets SmallCap Dividend Fund
2.92%
DWX
SPDR S&P International Dividend ETF
5.60%
DLS
WisdomTree International SmallCap Dividend Fund
2.74%
DFE
WisdomTree Europe SmallCap Dividend Fund
2.25%
DWM
WisdomTree DEFA Fund
2.73%

Above list of International dividend ETFs does not include ETFs that invest directly in a specific country like India or Russia.

 

Best High Yield / Largest Dividend ETF

Investors love nothing more than cashing regular dividend checks. iShares Dow Jones Select Dividend index fund (DVY) is one of the largest dividend paying ETF. It is a passive fund that invests in 100 US domestic stocks where it has a history of paying dividends. From the list of dividend ETFs above that focus on the US. It has one of the highest dividend yield ETF yield.

Once a company start to pay dividend which usually represent a stage where it can be seen as reaching maturity. The dividend payments rarely stop. Dividends are only cut in material adverse situations.

As a result of focus on consistency in dividend payments. Utilities, industrials and consumer staple companies are presented heavily in the fund. This includes Lockheed Martin, Entergy Corp and Integrys Energy.

Investors should be cautious in chasing dividends at the expense of fundamentals. By using DVY, it can eliminate some risks in chasing companies that temporarily pays dividends or unable to maintain current dividend level.

Another dividend index fund that provides similar exposure is WisdomTree LargeCap Dividend Fund (DLN).

 

Rising Dividend ETF or Dividend Appreciation ETF

For some, a large check is simply not enough. Not all investors are happy with a steady check but look to grow the income over time. One way of growing dividends is by reinvest in companies or ETFs that pays large dividends. Another way is investing in companies that will grow their dividends over time.

One of the lowest cost dividend paying etf is the Vanguard Dividend Appreciation ETF (VIG). VIG lives up to Vanguard’s reputation for being a low cost fund. Not only it is a passive dividend index fund. it has over $20 billion included in the fund. Liquidity will not be an issue for investors of this fund.

VIG tracks the NASDAQ US Dividend Achievers index which is a portfolio of stocks that has a track record in not only paying dividends year in and year out but also increase the total amount paid overtime.

More than 163 stocks are included in VIG providing diversification benefits for investors that are not experts in investment analysis. It is a largely domestically focused dividend fund with a maximum limit of 5% for foreign stocks. By tracking a dividend index, it is largely investors wholly and holds as little cash as possible.

Investors should note that Vanguard does not state the eligibility rules on how much the dividend increase must be or how many years of increase before a stock is included in the ETF. The Dividend ETF yield is lower than other funds, but this balanced by the expected growth overtime.

 

Small Capitalization Stock Dividend ETFs

The above two types of dividend ETF largely focuses on large capitalization stocks. WisdomTree SmallCap Dividend Fund (DES) provides a more narrower focus for investors that are inclined to small capitalization stocks while also owning a dividend paying ETF. It focus on dividend paying stocks that comprise of 25% of the smallest companies on the WisdomTree Dividend Index.

 

Smart Beta Dividend ETF

Unlike traditional index tracking ETFs which weighs companies based on market capitalization. Smart Beta funds differ by weighting stocks based on the selected fundamentals of the stock. DES can be considered a smart beta dividend ETF. Overall weighting in the smart beta dividend ETF is proportional of the size of dividend versus other companies in the index.

Not only are companies chosen for paying dividends, but the larger dividend it pays. The larger weighting in the fund it will get. This means investors will be exposed largest dividend payer in the small capitalization stock universe.

Aside from using a fundamental approach of using relative dividend yield as the primary in factor in determining stock weights in the fund. ALPS Sector Dividend Dogs ETF (SDOG) takes a contrarian approach. SDOG portfolio reweight annually and the stocks chosen are selected are the 5 highest yielding stocks on a normalized basis across 10 industries. normalized dividends means only stocks which pays regular dividends are only included.

 

Best International Dividend ETF

One of the best type of dividend paying ETF is international dividend ETFs. Chart below highlight the dividend yield of the list of dividend exchange traded fund above. The ETFs highlighted in red are funds which invest in companies outside the US.

International dividend ETFs provides a diversifying benefit for US investors and the dividend yields are much higher than US only dividend exchange traded funds. Overall yields of international ETF slightly lower than emerging market bond yields however this exclude the possibility of capital gains.

 

Dividend Paying ETF Yields

Dividend Paying ETF Yields

There are broad selection of international dividend ETFs to choose from. On one level the sector can be simply divided into developed market and emerging market dividend ETFs.

The idea on how to structure a dividend ETF also applies to the international stocks. PowerShares International Dividend Achievers Portfolio (PID) is a rising dividend ETF that focus on stocks that has a history of increasing dividend overtime. SPDR S&P International Dividend ETF (DWS) is equivalent to DVY in owning stocks that are of the highest yield or pays the largest dividends. DWS is one of the highest yielding international dividend out of all on the list.

 

Developed and Emerging Market Dividend ETFs

Global dividend funds can be further divided into developed market and emerging market segments. WisdomTree provides a very impressive selection in this from Emerging Market dividend ETFs like Emerging Markets High-Yielding Equity (DEM) and Emerging Markets SmallCap Dividend Fund. DEM is also one of the highest yielding ETF on the list. However given the context that it is an emerging market fund, it has a higher risk profile than other dividend paying ETF.

The International Dividend ETF selection includes

  1. International SmallCap Dividend Fund which owns small capitalized stocks in developed markets like Japan, Australia, United Kingdom and Hong Kong.
  2. Europe SmallCap Dividend Fund
  3. DEFA Fund (Europe, Far East Asia and Australasia)