Dividend ETFs are one of my favorite types of ETFs. Due to the huge selection of dividend ETFs available, no matter what kind of investor you are, no matter what kind of risk tolerance you have, and no matter your time horizion, you will find at least one dividend ETF to fit your portfolio.
In fact, you might have trouble limiting it to one. Dividend.com lists 61 different dividend ETFs, ranging in yield from 1.87% to 12.05%.
There’s justification for having more than one dividend ETF in your portfolio because of the sheer number and diversity of the offerings. Retirement investors will find tons of choices. Regular investors will have their pick of aggressive, high-yield dividend ETFs or conservative, blue-chip dividend ETFs.
Narrowing them down is a real chore, but I have three possible suggestions for different kinds of investor: aggressive, conservative, and all-around.
Best ETFs — ETRACS Monthly Pay 2x Leveraged Dow Jones Select Dividend Index ETN (DVYL)
For aggressive investors, I suggest the ETRACS Monthly Pay 2x Leveraged Dow Jones Select Dividend Index ETN (DVYL). This 2x leveraged dividend ETF is linked to the Dow Jones US Select Dividend Index. It pays dividends on a monthly basis and presently yields 6.2%.
This dividend ETF is up a solid 34% in the past year. DVYL has plenty of high-quality dividend companies that have helped it beat the market this year. Most of the names are ones you will recognize, and the top 10 holdings account for 21% of the asset base. That’s a big higher than I’d like, but since these are all strong brand names, and because the fund is diversified, there’s little risk of everything collapsing at once.
This dividend ETF also takes the approach of monthly leveraged resetting, rather than daily, which I prefer because it smooths out volatility.
Best ETFs — Charles Schwab US Dividend Equity ETF (SCHD)
If you’re a more conservative investor looking for a dividend ETF, I suggest you stay with a simple, large-cap ETF like the Charles Schwab US Dividend Equity ETF (SCHD).
SCHD is a nice, simple dividend ETF with the most familiar blue-chip names in its portfolio. It yields a modest 2.52%, and because of the blue-chip pedigree, I’m not terribly concerned that the top ten holdings make up 43% of the asset base.
It is technically classified as a large cap value ETF, but in truth, it aims to track the total return of the Dow Jones U.S. Dividend 100 Index. SCHD takes 100 stocks and puts them in the index based on cash flow to total debt, return on equity, dividend yield and five-year dividend growth rate. Then they are juggled for market cap, dividend payment consistency, size and liquidity.
Best ETFs — WisdomTree Total Dividend Fund ETF (DTD)
The best ETF for all-around dividend seekers may WisdomTree Total Dividend Fund ETF (DTD). DTD is a broadly diversified ETF of dividend stocks, with a 0.28% expense ratio. DTD has gained 15% so far in 2014 and yields 2.34%
These are also mostly (86%) large-cap, blue-chip stocks, but ones that aren’t quite as stodgy as those in the Schwab fund. DTD is described as “a fundamentally-weighted index that defines the dividend-paying portion of the U.S. stock market…that pay regular cash dividends and meet other liquidity and capitalization requirements.”
This dividend ETF does include about 12% mid cap and 2% small cap holdings as part of its 3000+ stock portfolio. The top 10 account for 22% of the total asset base and are heavily diversified. The average P/E ratio is about 17, and top industries include financials (18%), technology (14%), and consumer staples (13%).
Lawrence Meyers owns shares of AAPL.
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