Dividend exchange traded fund investors who are seeking a stable return, along with exposure to the growing U.S. markets, should stick to quality instead of chasing after yields.
“Shy away from those with the highest dividend yields,” Tom Fredrickson, a financial planner in Brooklyn, said in a CNBC article, adding that “if interest rates rise, bonds will become more attractive,” and investors will sell riskier dividend stocks to get the income they want with less risk.
ETF investors have a number of options to track quality dividend stocks. For example, the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) tracks the Nasdaq US Dividend Achievers Select Index, which selects U.S. stocks that have increased dividends on a regular basis for at least 10 consecutive years. VIG has a 2.02% 12-month yield and a 0.10% expense ratio. [Stock ETFs & Fixed-Income Yield Spread Paints Bullish Picture]
The Schwab US Dividend Equity ETF (NYSEArca: SCHD) follows the Dow Jones U.S. Dividend 100 Index, which includes 100 stocks based on strong fundamentals, dividend yields and consistent dividend payouts for at least 10 consecutive years. SCHD has a 2.71% 12-month yield and a dirt cheap 0.07% expense ratio.
the SPDR S&P Dividend ETF (NYSEArca: SDY), which is benchmarked to the S&P High Yield Dividend Aristocrats Index, is about to make some changes. SDY’s underlying index mandates constituent firms have a minimum dividend increase streak of 20 years for inclusion. SDY has a 2.274% 12-month yield and a 0.35% expense ratio. [Changes Coming for Dividend Aristocrats ETFs]
Additionally, the S&P 500 Dividend Aristocrats Index, which only includes companies that have increased their dividends for at least 25 consecutive years, serves as the benchmark for the increasingly popular ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL). NOBL has a 1.64% 12-month yield and a 0.35% expense ratio.
Fredrickson is also looking beyond utilities, which have acted as a traditional dividend-generating equity option, after the sector posted large returns over the past year. VIG and SCHD both show a small 0.6% tilt toward utilities, while NOBL has a 1.9% in utility stocks and SDY has a larger 10.5% weight in the sector. [Utilities Sector ETFs Look Expensive]
For more information on dividend stocks, visit our dividend ETFs category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of SCHD.