Dividend exchange-traded funds (ETFs) are designed to invest in a basket of dividend-paying stocks. Stable, attractive dividends tend to be associated with bigger, less risky blue-chip companies, although any company can share their earnings with shareholders, and some of the highest yields are offered by smaller, less established names. Many ETFs operating in this space favor stable income with room to grow. However, others might pursue higher, potentially less secure dividend payments in the hope that such generous payouts are sustainable and not detrimental to the company’s finances or future growth prospects.
Dividend ETFs often are favored by more risk-averse, income-seeking investors. They also are used by investors to balance riskier investments in their portfolios. 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 ETFs with the best one-year trailing total returns are CDC, CDL, and SPYD.
The top holding of the first two of these ETFs is PepsiCo Inc. and the top holding of the third fund is EOG Resources Inc.
There are 91 dividend smart beta ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). Dividend stocks, as measured by the benchmark S&P 500 Dividend Aristocrats Index, have slightly outperformed the broader market in the past year. The index has provided a one-year trailing total return of 19.6% compared with 18.7% for the S&P 500, as of Jan. 28, 2022. The best-performing dividend ETF, based on performance over the past year, is the VictoryShares US EQ Income Enhanced Volatility Wtd ETF (CDC). We examine the three best dividend ETFs for the second quarter (Q2) of 2022 below. All numbers are as of Jan. 28, 2022.
Performance Over One-Year: 31.2%
Expense Ratio: 0.35%
Annual Dividend Yield: 2.51%
Three-Month Average Daily Volume: 84,656
Assets Under Management: $1.2 billion
Inception Date: July 2, 2014
CDC tracks the Nasdaq Victory U.S. Large Cap High Dividend 100 Long/Cash Volatility Weighted Index. The index gauges the performance of some of the highest dividend-yielding stocks within the Nasdaq Global Index and is capable of making tactical shifts in its exposure to equity markets during significant market declines, reinvesting when the market is rebounding. The ETF selects large cap U.S. stocks that offer high dividend yields and have at least four consecutive quarters of net positive earnings. The sectors receiving the highest exposure in the fund are utilities, financials, and consumer staples. CDC follows a blended strategy of investing in a mix of value and growth stocks of primarily large cap companies. The fund’s top three holdings are PepsiCo Inc. (PEP), a food, snack, and beverage company; Coca-Cola Co. (KO), a beverage company; and Johnson & Johnson (JNJ), which develops and manufactures healthcare products.
Performance Over One-Year: 30.8%
Expense Ratio: 0.35%
Annual Dividend Yield: 2.51%
Three-Month Average Daily Volume: 12,898
Assets Under Management: $249.7 million
Inception Date: July 8, 2015
CDL tracks the Nasdaq Victory US Large Cap High Dividend 100 Volatility Weighted Index, which gauges the performance of some of the highest dividend-yielding stocks within the Nasdaq Global Index. The ETF provides exposure to dividend-yielding, large cap U.S. value stocks. It follows a balanced weighting approach to investing in income-generating equities instead of methodologies where performance is dominated by the highest-yielding sectors or the stocks with the largest capitalizations. The sectors receiving the highest exposure in the fund are utilities, financials, and consumer staples. The fund’s top three holdings are PepsiCo, Coca-Cola, and Johnson & Johnson.
Performance Over One-Year: 29.2%
Expense Ratio: 0.07%
Annual Dividend Yield: 4.88%
Three-Month Average Daily Volume: 1,651,195
Assets Under Management: $5.4 billion
Inception Date: Oct. 21, 2015
Issuer: State Street
SPYD aims to track the S&P 500 High Dividend Index, which measures the performance of the 80 highest dividend-yielding companies within the S&P 500. The ETF seeks to provide investors with a high level of dividend income as well as the opportunity for capital appreciation. The sectors receiving the highest exposure in the fund are utilities, financials, and real estate. SPYD focuses on high-dividend-yield, large cap value stocks in the U.S. Its top three holdings are EOG Resources Inc. (EOG), which explores for and produces crude oil, natural gas, and natural gas liquids (NGLs); NiSource Inc. (NI), which provides natural gas, electricity, and other products and services; and Williams Companies Inc. (WMB), which is engaged in natural gas processing and transportation.
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