Don't Just Blindly Choose the Largest High-Dividend ETF | ETF Trends

With the yield on the 10-year Treasury hovering around 3%, advisors have been seeking out high-dividend yielding ETFs to combine stock appreciation potential with income generation. During a recent VettaFi-organized webcast, advisor attendees were asked to identify which investment styles were attractive for generating income in today’s market. The overwhelming response put high-dividend stocks easily ahead of REITs, preferred stocks, risk-managed income ETFs, as well as fixed income through investment-grade or high yield bonds. 

The Vanguard High Dividend Yield ETF (VYM) pulled in more than $4 billion year-to-date through June 6, including $1.2 billion in the past month to push its asset base to over $47 billion. While VYM’s net asset value has held up better than the broader equity market this year, the ETF was down 0.5% for the year and only sports a dividend yield of 2.7%. Below are highlighted a few stronger-performing, yet higher dividend yielding alternatives to consider and discuss what makes them distinct.

The Invesco High Dividend Yield Achievers ETF (PEY) was up 6.5% this year but still only has $1.2 billion in assets, aided by $240 million of net inflows. PEY owns 50 stocks selected principally based on dividend yield and consistent growth in dividends, including Altria (MO), Northwest Bancshares (NWBI), and Pinnacle West (PNW). Although all 11 GICS sectors are represented, PEY is heavily concentrated in utilities (25% of assets), financials (22%), and consumer staples (17%). Just 3% were in information technology stocks.

The ALPS Sector Dividend Dogs ETF (SDOG) was up 4.8% this year, yet the $1.3 billion ETF gathered just $63 million this year. SDOG owns the five highest dividend yielding stocks within each of the GICS sectors, excluding real estate, and is equally weighted at the security level and sector level when it is rebalanced quarterly. Energy was recently the largest sector (11% of assets) and financials the smallest (8%), with companies like Principal Financial Group (PFG) and Valero Energy (VLO) among the holdings.

A third strong-performing but relatively small high-dividend ETF is the Global X SuperDividend ETF (DIV), which was up 3.3% in 2022. The $725 million ETF has experienced less than $20 million of net inflows. DIV focuses on the 50 highest dividend yielding stocks in the U.S. While the fund has exposure to all 11 sectors, the range between the high and low sectors is between those of PEY and SDOG. Utilities, at 18% of assets, was the largest sector exposure, with companies such as American Electric Power (AEP) and Consolidated Edison (ED) among the top 10 positions. 

DIV’s 5.3% dividend yield is the highest of the trio of VYM alternatives, but all three offer a compelling income complement to owning stocks in a diversified portfolio.

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