It’s not surprising that dividend exchange traded funds have been all the rage lately.
Investors are looking for safety and yield, and dividend ETFs offer a low-cost, transparent way to invest in a basket of companies and mitigate single-stock risks.
Money Morning points to a recent Standard & Poor’s Capital IQ Equity Research note that focused on dividend ETFs based on the best yields and screened for performance, risk, credit rating and volatility. [S&P’s Best Dividend ETF Picks]
S&P’s top picks include:
- SPDR S&P Dividend (NYSEArca: SDY): The fund tracks the S&P High Yield Dividend Aristocrats Index, which holds the 50 highest dividend-yielding stocks in the S&P Composite 1500 Index that have raised dividends every year for the past 25 years. Top holdings include Pitney Bowes Inc. (NYSE: PBI), CenturyLink Inc. (NYSE: CTL) and Cincinnati Financial Corp. (Nasdaq: CINF). The fund has a 12-month yield of 3.56%, according to Morningstar data.
- WisdomTree Total Dividend (NYSEArca: DTD): The fund holds U.S.-listed dividend-paying stocks and weights them according to the size of the yield. The ETF’s largest holdings are in AT&T Inc. (NYSE: T), ExxonMobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX). DTD has a 12-month yield of 3.20%.
- Vanguard High-Yield Dividend (NYSEarca: VYM): The fund follows an index of high-yielding stocks that have generated higher-than-average yields. The top three holdings are ExxonMobil (NYSE: XOM), Microsoft Corp. (NasdaqGS: MSFT) and Chevron Corp. (NYSE: CVX). The fund has a 12-month yield of 3.14%.
- WisdomTree LargeCap Dividend (NYSEArca: DLN): DLN is similar to DTD, except it only holds large-cap stocks, including 300 of the largest companies ranked by market-cap from the WisdomTree Dividend Index. The fund has a 12-month yield of 3.03%.
“Dividends provide you with an income far better than you can get in bonds and with considerable protection against a down market,” Martin Hutchinson, Money Morning’s Global Investing Strategist, said. “Dividends are more important than ever right now. Trouble is, most retail investors either don’t know it, or won’t admit it.”
“Dividend ETFs mitigate the risk a company might commit the ultimate sin: suspend or cut a dividend,” Matt Krantz wrote for USA Today. “By owning one ETF, which owns shares of hundreds of dividend-paying stocks, if just one company halts its dividend, the impact to the investor will be relatively small.” [Dissecting Two Large Dividend ETFs]