When looking for long-term yield, income investors have two basic choices: dividend stocks and dividend exchange-traded funds. Dividend stocks have a little more consistency — particularly when picking a stock with a long history of dividend growth and a respectable yield. Investors picking these stocks pretty much know exactly what kind of payout (and payout growth) they can expect.
But even with that benefit, I prefer dividend ETFs. The payout tends to fluctuate a bit because investors are buying into entire baskets of stocks rather than a single name. And the names in that basket can change depending on the underlying index or, in the case of an actively managed fund, the decisions of a fund manager.
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But I’ll accept that increased uncertainty for the sake of diversification. Dividend ETFs provide protections that are less prevalent in single stocks — if there’s a catastrophic event that impacts a company in your portfolio, it could be an investing disaster. But investing in dividend ETFs means limiting exposure to any single stock.
There are, of course, lots of great dividend ETFs out there. The three highlighted here are geared toward long-term investors, but each has a distinctive approach. Let’s take a look at Schwab U.S. Dividend Equity ETF (SCHD 1.12%), State Street SPDR S&P Dividend ETF (SDY 0.99%), and iShares Core Dividend Growth ETF (DGRO 0.89%).
1. Schwab U.S. Dividend Equity ETF
SCHD is a popular ETF, with net assets of $98.65 billion. The ETF tracks the Dow Jones U.S. Dividend 100 Index, which comprises 100 high-yielding U.S. dividend stocks with a proven dividend track record. Note, however, that the index excludes real estate investment trusts (REITs), so if you’re looking to invest in a dividend-focused company like Realty Income, you’ll need to look elsewhere.
The five top holdings at this writing are UnitedHealth Group, Merck, Home Depot, Abbott Laboratories, and Procter & Gamble, with no single company accounting for more than 4.5% of the portfolio. SCHD is also diversified among stock market sectors, with consumer staples having the greatest weighting at 19.4%.
SCHD has an expense ratio of 0.06%, or a $6 annual fee per $10,000 invested. Shares are up 19.4% over the last year, but after accounting for the dividend payout, SCHD delivers a total return of 24.7%.
Schwab U.S. Dividend Equity ETF
Today’s Change
(-1.12%) $-0.37
Current Price
$32.20
Key Data Points
AUM
$99B
Dividend Yield
3.26%
Expense Ratio
0.06%
Top Holdings
UNH
4.48%
HD
4.36%
ABT
4.28%
2. State Street SPDR S&P Dividend ETF
SDY is also a solid ETF for income investors, but its focus is more on companies with long histories of dividend growth. While that may appeal to investors seeking additional security, the return isn’t quite as good as SCHD’s.
The fund tracks the S&P High Yield Dividend Aristocrats® Index, which includes the highest-yielding members of the S&P Composite 1500 Index that have increased dividends for at least 20 consecutive years. Dividend Aristocrat® is a registered trademark of Standard & Poor’s Financial Services LLC.
SPDR Series Trust – State Street SPDR S&P Dividend ETF
Today’s Change
(-0.99%) $-1.53
Current Price
$153.04
Key Data Points
AUM
$22B
Dividend Yield
2.44%
Expense Ratio
0.35%
Top Holdings
O
2.16%
VZ
2.11%
KMB
1.77%
Realty Income, known for its monthly dividend, is the top holding in this fund, with a 2.1% weighting, followed by Verizon Communications, Kimberly-Clark, Kenvue, and Automatic Data Processing. Stocks representing the industrial sector make up 18.8% of SDY, followed by consumer staples (16.5%), utilities (14.6%), and financials (13.3%).
With $21.85 billion in assets under management, SDY is more expensive than SCHD, with an expense ratio of 0.35%. The fund holds 156 stocks and returned 11.7% in the last year, with a total return of 16% after including dividends.
3. iShares Core Dividend Growth ETF
DGRO’s buy-and-hold dividend investing strategy focuses on companies with ample room to increase payouts over time, rather than on those with high yields today. It tracks the Morningstar U.S. Dividend Growth Index, which includes U.S. companies that have paid dividends for at least five years and have a payout ratio of less than 75%.
iShares Trust – iShares Core Dividend Growth ETF
Today’s Change
(-0.89%) $-0.69
Current Price
$76.52
Key Data Points
AUM
$42B
Dividend Yield
1.93%
Expense Ratio
0.08%
Top Holdings
JNJ
3.12%
JPM
3.04%
AAPL
2.97%
DGRO has $42.28 billion in assets under management and is the most diversified of the three ETFs, with 390 holdings. The top holding is Johnson & Johnson, with a 3.2% weighting, followed by JPMorgan Chase, AbbVie, Apple, and Microsoft. DGRO also stands out for its sector mix, with financial stocks carrying the largest weighting at 20.8%, followed by healthcare (18%) and information technology (16%).
DGRO has an expense ratio of 0.08% and a one-year return of 18.8%. After factoring in dividend payments, its total return is 22.3%.