Many Choices of US Dividend ETFs PDF
Many Choices of US Dividend ETFs PDF
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The Many Choices of US Dividend ETFs
s classified by ETF Database (etfdb.com) by VettaFi, there are currently 92 dividend
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focused US ETFs with nearly $460 billion under management. If you are seeking
dividend income from your ETFs, which should you take a close look at? That’s the
objective of the analysis in today’s research blog entry.
All 5,200+ stocks US and Canadian stocks, 16 sector groups, 200+ industries, and 600+ ETFs
have been updated:
ETFdb divides these ETFs into subcategories as shown by this pie chart:
he largest category is large cap ETFs, constituting about 45% of the total. Next in line
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are all-cap dividend ETFs which includes small- and mid-cap dividend-paying stocks but
their allocations still tend to be dominated by large cap stocks. I was somewhat
surprised to find that there are as many as 20 small cap dividend ETFs since most
people think of small cap stocks as rarely paying dividends. The fact that there are five
v olatility hedged dividend ETFs, tailored for risk-averse dividend investors seems more
intuitive. Finally, the other category includes international stocks, midcaps, sectors and
leveraged ETFs.
his analysis starts with the top 10 dividend-focused ETFs ranked by Assets Under
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Management (AUM).
Current ValuEngine reports on all covered stocks and ETFS can be viewedHERE
anked by assets under management, ranging from $20 Billion to $80 Billion, the top 10
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ETFs are all in either the large cap or the all-cap categories, Within the categories,
however, are three different “smart beta” strategies. The current dividend yield for the
top 10 has a fairly high range, from 1.5% to 4.2%.
ix of the 10, Wisdom Tree US Quality Dividend Growth Fund (DGRW), First Trust
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Dividend Achievers (RDVY), Vanguard Dividend Appreciation ETF (VIG), ProShares
S&P 500 Dividend Aristocrats (NOBL), iShares CoreDividend Growth ETF (DGRO)
and SPDR S&P Dividend (SDY) focus on dividend streamconsistency and/or steady
dividend growth. These ETFs tend to distribute less income than ETFs focused primarily
on high dividend yield.
lternatively, Vanguard High Dividend Yield (VYM)and iShares Select Dividend ETF
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(DVY) focus primarily on aggregating high currentdividend yield companies using
different weighting rules. Finally, Schwab US Dividend Equity ETF (SCHD) and Schwab
Fundamental Large Company ETF (FNDX) focus on highdividend paying companies
that pass fundamental quality screens to identify value stocks. The last category
delivered the highest current dividend yields amongst this group.
anking by recent price performance, the ETFs with the two lowest dividend yields
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ranked first in the three price return categories RDVYhas enjoyed the highest
year-to-date price gain of 22% as well as the highest 1-month price gain of nearly 3%.
DGRW, holding up the best in 2022, has the best 3-yearannualized gain of 11.6%.
FNDXandDVYalso finished in the top four in allthree time frames. On the other end
of the spectrum, the worst one month loss, -2.8%, was posted bySDY, just below the
-2.7% posted byNOBL. The latter posted the lowestreturn on a year-to-date basis as
well as for the 3-year period.
ne thing that struck me as unexpected is that ranking the list of ETFs by AUM did not
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closely mimic the list’s ranking by average daily Trading dollar volume. For example,
VIG, ranked #1 by AUM, ranked just 4th in daily volume.MeanwhileDGROranked 4th in
AUM but 2nd in trading volume. SCHD,second toVIGin assets under management, is
the trading volume titan by a six-to-one margin over second-placeDGROand roughly
12-to-1 versusVIG, the AUM leader.
rom a volatility lens, there is little difference amongst 8 of the 10 ETF with price
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volatility betas between 0.84 and 0.89. As expected, the eight ETFs exhibit
below-average volatility in response to market movements.FNDXexhibits price volatility
identical toSPYat 1.00. The real outlier in volatilityisRDVYwith a Beta of 1.15
indicating it will respond to market moves with 15% greater volatility.
DVYis also the outlier in the wrong direction onexpense ratio, by far the highest at
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0.49%. The five other “smart beta” ETFs have expense ratios between 0.25% and
0.38%. FNDXby Schwab has the low end of that rangeandDVYby iShares has the
high end. The three ETFs with the highest amount of assets under management also
have the lowest expense ratios that most large institutions prefer, 0.06%. These include
Vanguard’sVIG, Schwab’sSCHDand Vanguard’sVYM.Just behind these three in
AUM,DGROby iShares has a fee of 0.08%.
ow that we’ve thoroughly covered the past, what lies ahead? According to
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ValuEngine’s predictive model, indicated by the VE Rating column in the table above,
DVYis ranked highest in projected price performancewith5(Strong Buy). VYMand
FNDXare also ranked highly with ranks of4(Buy). Please visit the reports on these
three to learn more. On the other end of the spectrum, despite strong performance in
the two most recent periods,RDVYgets our lowestpredictive rating of1(Strong Sell).
AUM leaderVIGand #10 in AUMNOBLare also rankedas having below average price
gain prospects with2(Sell) ratings. SCHD,DGROandSDYare all rated3(Hold)
which is in the middle of the spectrum.
eyond the top 10, are there any US Stock ETFs that give investors a chance at higher
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yields without using options, futures or swaps? The answer is yes so let’s take a quick
look at 5 smaller high-dividend-yield ETFs as ranked by yield and screened to include
only ETFs without derivatives or foreign stocks.
Current ValuEngine reports on all covered stocks and ETFS can be viewedHERE
Invesco KBW High Dividend Yield Financial ETF(KBWD)is a financial sector ETF only
in the broadest interpretation of the term. It invests primarily in Business Development
Companies (BDCs) and Special Purpose Acquisition Companies (SPACs). Both are
highly speculative and are at least as prone to capital depreciation than appreciation.
As such, this highest yielding ETF in the category is NOT recommended to most
investors for further research except for the most speculative in search of yield.
Invesco S&P Small Cap High Dividend Low Volatility ETF(X SHD)tracks an index of 60
dividend-paying U.S. small-caps which are less susceptible to market swings. In doing
so, it combines three smart beta factors.
Invesco High Yield Equity Dividend Achievers ETF(PEY)focuses ona select group of
companies that have a solid track record as a source of consistent dividends and may
offer attractive current yields relative to the broader market. Stocks are selected based
on dividend yield and consistent dividend growth, resulting in a portfolio that should
exhibit a beta less than 1.0 along with a high dividend yield.
Once again, the table below shows how the ETFs compare in eight different categories.
vg.
A E
V
1 TD
Y Year
3 Div
Daily Ratin Month Price Return xp.
E ield
Y
Sym Name Vol g Return Change s Ratio % Beta
Invesco KBW High
Dividend Yield
KBWD Financial ETF 163,432 3 0.08% 6.15% 0.55% 2.02% 12.0% 1.40
Invesco S&P
SmallCap High
Dividend Low
SHD Volatility ETF
X 51,809 - -0.85% -2.20% -6.27% 0.30% 7.3% 1.14
lobal X
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SuperDividend
DIV U.S. ETF 142,268 2 0.89% 14.99% 3.83% 0.45% 5.8% 1.02
Franklin U.S. Low
Volatility High
Dividend Index
LVHD ETF 48,303 4 -0.95% 15.26% 6.28% 0.27% 4.7% 0.76
Invesco High Yield
Equity Dividend
PEY Achievers ETF 183,939 5 -0.02% 8.97% 7.72% 0.53% 4.6% 0.87
Current ValuEngine reports on all covered stocks and ETFS can be viewedHERE
he first thing that struck me looking at this table is how much the expense ratio of The
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Invesco KBW High Dividend Yield ETF (KBWD) is outof whack with all the other ETFs.
This is because special vehicles such as BDCs are already managed companies, and
the 2.02% ER accumulates the fees charged by Invesco with the acquired fund fees.
The 12.0% yield is certainly attractive and its historical returns for the three time frames
combined with that yield would certainly be acceptable going forward if that were a
reasonable expectation. The problem is that BDCs, SPACs and REITs are more
vulnerable to recession than companies in most other sectors and it is not uncommon to
see many companies in these categories simply go out of business. The credit risk and
leverage ratios are through the roof on these entities. Its beta of 1.40 shows how much
higher its volatility is during good times. It would be even higher in a recession. On the
other hand, if no recession comes in the next two years, then the total returns including
the income are very attractive. The ValuEngine model currently ratesKBWDto perform
in line with the market. Its rating is 3 (Hold).
SHDhas been this group’s worst performer in all three periods. The ultra-high
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dividend yield and the relatively low expense ratio enhance its appeal somewhat.
However, it’s been the worst performer of the group in the past five years. Its projected
future performance is also subpar according to ValuEngine’s model with a2 (Sell)
rating. It’s also disconcerting to see an ETF with “Low Volatility” in its name with a beta
that is 14% above the market.
he next two ETFs are more interesting to our predictive model even though the yields
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are lower. Franklin Templeton’s Franklin U.S. Low Volatility High Dividend Index ETF
(LVHD) is performing quite well with a very low feeratio of 0.27% for an ETF that
combines smart beta factors. Although it was the group’s worst performer on a 1-month
basis, it is the best performer year-to-date, and it is the second best performer for the
three-year period. Its 4.7% dividend yield is higher than any of the ETFs we looked at in
the earlier group of 10 which topped out with 4.2% by Schwab’sFNDX. Its beta of 0.76
makes it the least volatile of all 15 dividend-focused ETFs reviewed here. Its
ValuEngine rating is4(Buy). The only caution flagis that its average daily dollar trading
volume is the lowest among the 15 with an average of just above 48,000 shares per
day. Therefore, it is not the type of ETF you want to trade in and out of, but it should be
fine for a long-term buy-and-hold in a strategic equity allocation. I always advise to use
limit orders when purchasing ETFs to ensure you are getting a price close to Net Asset
Value. That rule would especially apply here. The underlying stocks are very liquid so if
the bid-ask spread looks wide and you are purchasing 500 shares or more, use the
number on the ETFs prospectus to call the fund. They may be able to get a market
maker to get you a price at NAV. Beyond liquidity,LVHDappears to be a solid candidate
to investigate for dividend investors. Its ValuEngine rating is4(Buy).
inally, the Invesco High Yield Dividend Achievers ETF (PEY) uses a multifactor smart
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beta index by Research Affiliates from an index family they call RAFI. The F stands for
fundamental-weighting and tilts toward undervalued stocks with low price volatility. Its
3-year annualized return of 7.72% is tops in this ultra-high dividend group. It also has
the highest possible ValuEngine rating of5(StrongBuy) for projected performance to
go along with a dividend yield of 4.6%. Its unusual methodology is worthy of reading
more about before considering any action onPEY. Its fee structure for an indexed ETF
is very high at 0.59%. However, the intricate weighting scheme and need to purchase,
vet and process fundamental data may justify that fee in an investor’s eyes. As with
everything else in investing, tradeoffs must be considered before making decisions.
aving reviewed 15 of the 92 dividend focused ETFs, I hope this gives many readers a
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good window for what to look for in evaluating these products. To recap, the most
timely ETFs now according to our predictive model areDVYfrom iShares by Blackrock
andPEY. However, as both have above-average expenseratios, fee-conscious
investors who also want to take ValuEngine rating into consideration could delve into
the more modestly pricedVYM. We rate it4(Buy)and it ties for the lowest expense
ratio of 0.06%. its yield of 2.8% is about double that of the S&P 500. The two other
ETFs we covered that are rated4(Buy) are Schwab’sFNDXand Franklin’sLVHD.Both
have yields above 4% and strong recent historical performance along with solid
methodologies. As you can see, dear reader, this is a highly competitive, some say too
crowded, segment of the indexed ETF market. There are also many other ETFs geared
to derive dividend payout income from the market. In such a crowded market, research
is the investor’s best friend.
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ll of the over 4,200 stocks, 16 sector groups, over 250 industries, and 600 ETFs have been
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updated onwww.ValuEngine.com