The universe of exchange-traded funds (ETFs) is awash in low-fee products and that space is growing as issuers use discounted fees to lure investors.
Income-seeking investors do not have to pay up to access high dividend ETFs. In fact, numerous high dividend ETFs can be considered inexpensive, which is an important point for income investors looking to keep more of those dividends and invested capital. High dividend ETFs are often embraced by long-term investors and over the long-term, lower fees can mean better outcomes for investors.
Over the past several years, data confirm that when it comes to adding new assets, the best ETFs are usually those with annual fees of 0.20% or less. Plenty of high dividend ETFs fit into that category, making it a cost-effective method for thrifty investors to access broad baskets of dividend stocks.
Here are some of the lowest of the low-fee, high dividend ETFs for income-minded investors to consider.
High Dividend ETFs to Buy: iShares Core High Dividend ETF (HDV)
Expense Ratio: 0.08%, or $8 annually per $10,000 investment
Many high dividend ETFs weight components by yield, a strategy that has some drawbacks. Those disadvantages include vulnerability to rising interest rates and the potential for exposure to financially challenged companies that may have trouble maintaining and growing dividends.
The iShares Core High Dividend ETF (NYSEARCA:HDV) has a trailing 12-month dividend yield of 3.51%, which is well above the S&P 500 and 10-year Treasuries. However, this high dividend ETF follows the Morningstar Dividend Yield Focus Index, which screens companies for financial health, giving the fund a quality look.
With an annual fee of just 0.08%, HDV is one of the cheaper high dividend ETFs on the market today. That low fee coupled with its sector allocations make HDV ideal for conservative investors. The healthcare, consumer staples, telecom and utilities sectors, four of HDV’s top five sector weights, can all be considered defensive groups.
High Dividend ETFs to Buy: SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
Expense Ratio: 0.07%
The SPDR Portfolio S&P 500 High Dividend ETF (NYSEARCA:SPYD) is one of the least expensive dividend ETFs on the market, high dividend or otherwise. The ETF tracks the S&P 500 High Dividend Index, the high dividend offshoot of the traditional S&P 500.
SPYD’s yield requirement gives this high dividend a focused roster of just 80 stocks, but the trailing 12-month dividend yield of 3.87% makes this high dividend ETF appealing for income investors relative to standard broad market funds.
SPYD relies heavily on high income sectors that have shown historical vulnerability to rising interest rates — a trait to keep in mind in the current market environment. The real estate and utilities sectors combine for over 45% of this high dividend ETF’s weight.
High Dividend ETFs to Buy: Invesco Dow Jones Industrial Average Dividend ETF (DJD)
Expense Ratio: 0.07%
The Invesco Dow Jones Industrial Average Dividend ETF (NYSEARCA:DJD) is a yield-weighted approach to the venerable Dow Jones Industrial Average. What this high dividend ETF does is weigh the 30 Dow stocks by their trailing 12-month, not price, as the traditional Dow does. That gives DJD a trailing 12-month dividend that is 20 basis points higher than the price-weighted Dow’s.
DJD’s yield focus makes Verizon Communications (NYSE:VZ) the high dividend ETF’s largest holding whereas Boeing (NYSE:BA) is the largest component in the traditional Dow. DJD’s largest sector weight is technology and the fund devotes just 10.36% to industrials, less than half that sector’s weight in the standard Dow.
While DJD appears to be a high dividend ETF, the fund offers significant dividend growth potential because many of the Dow’s 30 member firms have payout increase streaks that can be measured in decades.
High Dividend ETFs to Buy: Invesco S&P 500 Quality ETF (SPHQ)
Expense Ratio: 0.15%
With a trailing 12-month distribution rate of just 1.73%, the Invesco S&P 500 Quality ETF (NYSEARCA:SPHQ) does not scream “high dividend ETF.” SPHQ’s underlying index, the S&P 500 Quality Index, does not even emphasize dividends.
Rather, that benchmark focuses on firm’s “that have the highest quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio,” according to Invesco. While SPHQ is not explicitly a high dividend fund, reliable, growing dividends are often a hallmark of companies meeting the standards of the quality factor.
With a combined weight of nearly 55% to the technology and consumer discretionary sectors, SPHQ has the feel of a growth ETF, but that means this fund also pairs well with more traditional high dividend ETFs, such as some of the funds highlighted above.
High Dividend ETFs to Buy: Vanguard High Dividend Yield ETF (VYM)
Expense Ratio: 0.08%
Home to $21.6 billion in assets under management as of the end of July, the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is one of the largest dividend ETFs of any varietal. It is not unreasonable to speculate that VYM’s name frames the fund as a high dividend ETF, but a trailing 12-month yield of 2.87% is not alarmingly high.
More importantly, VYM is not overly dependent on rate-sensitive sectors. This high dividend ETF features no real estate exposure and the bond-esque telecom and utilities sectors combine for just 11.60% of VYM’s weight. That explains why over the past three years, a period in which the Federal Reserve has hiked interest rates three times, VYM has easily outpaced the largest real estate and utilities ETFs.
VYM holds 405 stocks, a quarter of which hail from the industrial and healthcare sectors. Financials, a sector that has been a major driver of S&P 500 dividend growth over the past year, is this high dividend ETF’s largest sector exposure at 16.6%.
High Dividend ETFs to Buy: JPMorgan U.S. Dividend ETF (JDIV)
Expense Ratio: 0.12%
The JPMorgan U.S. Dividend ETF (NYSEARCA:JDIV) is one of the youngest funds on this list, having debuted just 10 months ago, but it fits the bill as a cost-effective high dividend ETF. JDIV “utilizes a rules-based approach that adjusts sector weights based on volatility and yield and selects the highest yielding stocks,” according to the issuer.
With a trailing 12-month yield of 3.76% (as of July 31), JDIV has high dividend ETF credentials. JDIV’s annual fee of 0.12% is lower than all but eight U.S.-listed dividend ETFs. Many of JPMorgan’s fees are competitive on costs, so it would be surprising to see JDIV’s cost come down as its assets under management increase.
Year-to-date, JDIV is up 2.73%, putting it ahead of several of the other high dividend ETFs highlighted here, including HDV and VYM.
High Dividend ETFs to Buy: Xtrackers MSCI EAFE High Dividend Yield Equity ETF (HDEF)
Expense Ratio: 0.20%
For an international dividend ETF, the Xtrackers MSCI EAFE High Dividend Yield Equity ETF (NYSEARCA:HDEF) is favorably priced. For the time being, this high dividend ETF is actually one of the two least expensive international dividend ETFs trading in the U.S.
HDEF targets the MSCI EAFE High Dividend Yield Index, a benchmark that is high dividend derivative of the widely followed MSCI EAFE Index. Bolstering the case for an international high dividend ETF like HDEF is the solid pace of ex-U.S. developed markets dividend growth this year, including some of the major markets represented in HDEF.
While HDEF is a credible opportunity among international high dividend ETFs, the laggard status of European stocks (78% of the fund’s weight) is hindering HDEF this year. On the more positive side of the ledger is ex-U.S. dividend growth and valuation opportunities across developed markets, two traits that speak to long-term opportunity with HDEF.
As of this writing, Todd Shriber did not own any of the aforementioned securities.