Top Dividend ETFs and Why They Perform Well
When it comes to investing in dividend ETFs, there are a variety of options available. Each ETF offers different dividends, growth rates, and advantages. In this article, we will explore the top dividend ETFs, focusing on strategies and performance metrics to help you make informed investment choices.
Understanding the Power of Dividend Growth
One key metric in evaluating dividend ETFs is the dividend growth rate. A high dividend growth rate indicates that the companies in the ETF are increasing their dividends over time, which can be a sign of healthy business growth and a long-term commitment to shareholder returns.
Case Study: iShares Core SP 500 ETF (SCHD)
The iShares Core SP 500 ETF (SCHD) is a popular choice among dividend investors due to its impressive dividend growth rate. My analysis revealed that SCHD had the highest dividend growth rate of all the dividend ETFs, with a rate of 11.67% over 43 calendar quarters. This exponential growth, which boasts an R-squared of 0.9823, demonstrates that the ETF is consistently delivering on its promises of increasing dividends.
To arrive at this figure, I used a spreadsheet to input all dividend payments since the fund's inception. I plotted the number of quarters on the x-axis and the trailing twelve-month dividend on the y-axis. Drawing a best-fit exponential trend line through this data provided a clear picture of the growth rate. Additionally, the ETF price with dividends reinvested tracked very closely with the equal-weighted SP 500, indicating strong performance and stability.
Other Notable Dividend ETFs
While SCHD stands out for its dividend growth rate, several other popular dividend ETFs also have their unique advantages. Here’s a closer look at some of them:
Vanguard International High Dividend Yield ETF (VYMI)
The Vanguard International High Dividend Yield ETF (VYMI) is known for its high yield, offering a 4.39% dividend yield. It provides exposure to international companies with strong dividend histories, making it an attractive option for investors seeking a broader geographic reach.
Invesco SP 500 High Dividend Low Volatility ETF (SPHD)
The Invesco SP 500 High Dividend Low Volatility ETF (SPHD) is another top pick, with a dividend yield of 4.55%. This ETF focuses on high dividend-paying stocks from the SP 500 with low volatility, making it suitable for conservative investors who prefer a more stable income stream.
WisdomTree U.S. SmallCap Dividend Fund (DES)
The WisdomTree U.S. SmallCap Dividend Fund (DES) offers a 2.92% dividend yield, making it an excellent choice for investors interested in smaller companies with strong dividend-paying potential. This ETF provides exposure to a mid-cap segment of the U.S. market, offering a mix of growth and income.
FCF International Quality ETF (TTAI)
The FCF International Quality ETF (TTAI) is unique due to its 10.38% dividend yield. This ETF focuses on quality international firms that have a proven track record of distributing high dividends. It’s an ideal choice for investors looking for a combination of strong dividend yields and quality investment opportunities.
The Dividend Aristocrats: A Robust Option for Long-Term Investors
The Dividend Aristocrats is an ETF that holds equally weighted stocks of companies that have consistently increased their dividends over time. This strategy offers several benefits:
Consistent Dividend Growth
Companies that consistently increase their dividends are often growing and expanding. This consistent growth can be a sure sign of a healthy company, making it an attractive option for investors seeking steady income.
Lower Volatility and Reduced Management
Another benefit of the Dividend Aristocrats ETF is the reduced management required. Unlike other ETFs, when a company underperforms, it gets replaced. This automatic adjustment ensures that the ETF always contains only performing and quality companies, reducing volatility and the need for constant monitoring.
Conclusion
Evaluating the best dividend ETFs involves considering various factors such as dividend growth rates, yields, and investment strategies. Whether you are looking for consistent growth, high yield, or quality companies with a proven track record, there is a dividend ETF that can meet your investment goals. By doing thorough research and understanding the performance metrics, you can make informed choices and build a robust dividend income portfolio.