As more people shift assets around to invest toward their golden years, income-seeking investors are finding less opportunities in traditional fixed-income products. Yields in CDs, money market accounts and Treasury bonds are already at their record lows after investors piled into safe-haven assets on the heightened market volatility. Still, investors can find income opportunities in dividend exchange traded funds.
Dividend ETFs help provide investors with income-paying opportunities. They offer high yields by holding a basket of dividend-issuing stocks from both U.S. domestic and global stock markets. Typically, these funds will include a diversified range of highly liquid stocks with above-average dividend yields. Additionally, dividend ETFs may follow a specific guideline when selecting their component stocks. For instance, some may screen for specific quantitative qualities, including a history of increasing dividends or large and stable dividend payers.
Income-generating ETFs have been among the most popular funds traded on the markets, with products like the Vanguard Dividend Appreciation ETF (NYSEArca: VIG), iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY) and SPDR S&P Dividend ETF (NYSEArca: SDY) attracting around $10 billion in assets each. Additionally, as the ETF universe continues to expand, ETF providers have come out with a collection of various dividend-related fund products that help investors diversify into various pockets of dividend producing assets and access different levels of yields. [Dissecting Vanguard’s Two Largest Dividend ETFs]
Vanguard Dividend Appreciation ETF. VIG has an expense ratio of 0.18% and a 12-month yield of 2.01%.
iShares Dow Jones Select Dividend Index Fund. DVY has an expense ratio of 0.40% and a 12-month yield of 3.33%.
SPDR S&P Dividend ETF. SDY has an expense ratio of 0.35% and a 12-month yield of 3.11%.
We also have other various dividend ETFs that promise “high dividend yields,” but like with most ETF investments, individuals should take the time to dive in and carefully look at what they are getting themselves into.
For instance, the Vanguard Dividend Appreciation ETF (VIG) and the Vanguard High Dividend Yield ETF (NYSEArca: VYM) track completely different strategies and they may be more conservative than you might think, as both may serve adequately as a core holding. VIG follows companies that have raised their dividends year-over-year, whereas VYM follows the highest-yielding third of the U.S. market, with high-quality, established firms dominating the space.
Some other dividend ETFs that follow their own proprietary methodology in selecting component stocks through set quantitative measurements include iShares High Dividend Equity ETF (NYSEArca: HDV), WisdomTree Dividend Top 100 Fund ETF (NYSEArca: DTN), and First Trust Morningstar Dividend Leaders Index (NYSEArca: FDL).
Investors, though, may also be interested in holding dividend ETFs based on asset class. You may want to take on a broad dividend market prospective through a fund like the WisdomTree Total Dividend Fund ETF (NYSEArca: DTD), but you could break down the market capitalizations, as well. For example, investors may take a look at the WisdomTree LargeCap Dividend Fund ETF (NYSEArca: DLN), WisdomTree MidCap Dividend Fund ETF (NYSEArca: DON) and WisdomTree Trust SmallCap Dividend Fund ETF (NYSEArca: DES).
International Dividend ETFs