With interest rates looking to stay near zero for some time yet, yield-hungry investors have taken to equity markets for juicier sources of income. And in the world of exchange-traded products, dividend ETFs have become even more popular in recent years, thanks to their low costs, transparency, and wide array of dividend-focused strategies. Whether you are looking for fine-tuned exposure to a particular region, companies that have increased dividends for more than 20+ years, or are hoping to cast a wider net over the space, investors have more than 65 dividend-focused ETFs to choose from [see 101 High Yielding ETFs For Every Dividend Investor].
Below, we highlight the 10 largest dividend ETFs, and everything investors need to know about them (data as of November 13, 2013):
The Dividend King: Dividend Appreciation ETF (VIG, A)
- Assets: $18 billion
- Expense Ratio: 0.10%
- Dividend Yield: 2.05%
This Vangaurd offering is the biggest dividend-focused ETF on the market, with more than $18 billion in total assets under management. VIG focuses on dividend paying companies that have a history of increasing dividends for at least 10 consecutive years [see also Dividend ETF Special: 25 Equity ETFs With Attractive Distribution Yields].
Consisting of nearly 150 stocks, VIG’s portfolio is nicely spread out across a wide array of sectors, including consumer defensive, industrials, consumer cyclical, and energy equities. Top holdings include PepsiCo Inc (PEP). Procter & Gamble (PG), Coca-Cola (KO), and Abbott Laboratories (ABT).The Veteran: Select Dividend ETF (DVY, B+)
- Assets: $13 billion
- Expense Ratio: 0.40%
- Dividend Yield: 3.14%
Launched in 2003, this veteran fund tracks the Dow Jones U.S. Select Dividend Index - a yield-weighted benchmark that screens stocks by dividend per share growth rate, dividend payout percentage rate, and average daily dollar trading volume.
DVY’s top holdings include Lorillard (LO), Lockheed Martin Corporation (LMT), Chevron (CVX), and Philip Morris International, Inc. (PM). Investors should not that nearly one-third of the fund’s total holdings are allocated to utilities equities. But unlike most dividend focused funds, DVY has meaningful exposure to mid and small cap stocks.
The Aristocrat: SPDR S&P Dividend ETF (SDY, B+)
- Assets: $12 billion
- Expense Ratio: 0.35%
- Dividend Yield: 2.44%
This State Street offering tracks the S&P High Yield Dividend Aristocrats Index, which is comprised of the 50 highest dividend yielding constituents of the stocks of the S&P Composite 1500 Index that have increased dividends every year for at least 25 consecutive years.
Given SDY’s methodology, the fund offers investors access to stocks that have both capital growth and dividend income characteristics. Like DVY, SDY also has meaningful exposure to mid cap stocks, which account for roughly one-third of the fund’s total assets. And though SDY has only 85 individual holdings, no single security receives more than a 2.6% weighting, making it relatively well-balanced [see also How To Pick The Right ETF Every Time].
The A+ Rated: High Dividend Yield ETF (VYM, A+)
- Assets: $6.9 billion
- Expense Ratio: 0.10%
- Dividend Yield: 2.83%
Another Vanguard dividend ETF is at the top of this list. VYM has some overlap with VIG, but implements a slightly different dividend-centric strategy. Instead of focusing on the most consistent dividend payer, it picks those U.S. stocks with the highest yields. As a result, VYM will generally have a higher distribution yield, but will include stocks with shorter histories of paying out money to their shareholders.
The index this fund follows is derived from the U.S. component of the FTSE Global Equity Index Services. VYM’s top holdings include Exxon Mobil (XOM), General Electric (GE), Chevron (CVX), and Johnson & Johnson (JNJ).
The Emerging Market Targeted: Emerging Markets High-Yielding Equity Fund (DEM, A-)
- Assets: $5.0 billion
- Expense Ratio: 0.63%
- Dividend Yield: 3.91%
This WisdomTree fund tracks the WisdomTree Emerging Markets Equity Income Index, which measures the performance of the highest dividend yielding stocks from emerging market countries. DEM consists of over 300 individual holdings, the majority of which are financial services, basic materials, energy, and communication services equities.
Nearly 20% of DEM’s total assets are allocated to Russian dividend-paying stocks, though equities from China, Taiwan, Brazil and South Africa also receive meaningful exposure. The fund also limits its exposure to mid, small, and micro cap firms, a good thing for investors wanting to mitigate the higher risks associated with smaller emerging market companies.
The Selective Portfolio: High Dividend ETF (HDV, B+)
- Assets: $3.2 billion
- Expense Ratio: 0.40%
- Dividend Yield: 3.10%
This iShares offering tracks the Morningstar Dividend Yield Focus Index, which is designed to measure the performance of a select group of U.S. securities that have provided relatively high dividend yields on a consistent basis. As a result of the methodology, HDV holds only about 75 individual holdings, with just under 60% of total assets allocated to the top 10 holdings, which include AT&T, Chevron, and Johnson and Johnson.
HDV also is primarily made up of giant cap firms, the majority of which are from the health care, consumer defensive, communication services, and utilities industries [see also 10 Questions About ETFs You've Been Too Afraid To Ask].
The High Yielder: International Select Dividend ETF (IDV, B+)
- Assets: $2.9 billion
- Expense Ratio: 0.50%
- Dividend Yield: 4.57%
This ETF boasts the highest dividend yield on this list and is home to nearly $3 billion in AUM. IDV tracks the Dow Jones EPAC Select Dividend Index, which measures the performance of a selected group of companies that have provided relatively high dividend yields on a consistent basis over time.
In terms of geographic diversification, equities from Australia make up roughly 20% of IDV’s total assets. Dividend-paying stocks from the United Kingdom and France are also given meaningful exposure.
The Small Cap Twist: Emerging Market Small Cap Fund (DGS, A)
- Assets: $1.7 billion
- Expense Ratio: 0.64%
- Dividend Yield: 3.22%
This ETF tracks the fundamentally-weighted WisdomTree Emerging Markets SmallCap Dividend Index, a benchmark that contains more than 500 securities. Investors should note however, that mid cap stocks make up more than one-third of DGS’s portfolio, while small and micro cap firms account for a little over one-fourth.
DGS distinguishes itself from other emerging market ETFs in that it predominately focuses on smaller emerging economies rather than the popular BRIC countries; Brazil, Russia, India, and China account for less than 15% of holdings. DGS is heavily invested in Asian countries with Taiwan, Indonesia, and Malaysia being among its largest country allocations, accounting for close to 40% the portfolio.
The Large Cap Twist: LargeCap Dividend Fund (DLN, A)
- Assets: $1.7 billion
- Expense Ratio: 0.28%
- Dividend Yield: 2.60%
Another WisdomTree offering, DLN tracks the WisdomTree LargeCap Dividend Index, a fundamentally weighted index that measures the performance of the large-capitalization segment of the U.S. dividend-paying market. The fund invests in roughly 300 individual securities, the majority of which are giant cap firms.
Exposure is nicely spread out across a variety of sectors, including technology, consumer defensive, health care, industrials, and energy. Top holdings include AT&T, Exxon, and Microsoft.
The Cheapest: US Dividend Equity ETF (SCHD, A)
- Assets: $1.4 billion
- Expense Ratio: 0.07%
- Dividend Yield: 2.58%
With an expense ratio of a mere seven basis points, Schwab’s SCHD is the cheapest ETF on this list. The fund’s underlying index is designed to measure the performance of high dividend yielding stocks issued by U.S. companies that have a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios [see The Hidden Costs of ETF Investing].
The fund allocates nearly 40% of its assets to consumer defensive and industrial stocks, while technology, consumer cyclical, energy, and health care industries also receive meaningful exposure. Top holdings include Johnson & Johnson, Microsoft, Coca-Cola, and Exxon.
Follow me on Twitter @DPylypczak.
Disclosure: No positions at time of writing.
- Dividend Yield
- Expense Ratio