Dividend stocks will continue to gain popularity in 2018, as many investors struggle to find consistent sources of income. After all, despite talk of rising interest rates the 10-year T-Note yields about 2.3% right now and CDs at your local bank rarely crack the 1.3% mark.
That means dividend stock investing, despite a bit more risk, is favorable because of higher potential yield. But sometimes choosing the best dividend stocks is difficult, and investors worried about the risks rarely like having all their eggs in one basket.
The solution? Exchange-traded funds — more specifically, dividend ETFs. These funds do all the work and help investors pick a compilation of stocks that satisfy a specific goal.
Not every income-focused investor is the same, but finding the best dividend ETFs to buy shouldn’t be too difficult as there are many to choose from that satisfy even the most obtuse objectives.
Here are seven ETFs to buy for boosting income in 2018.
Best Dividend ETFs to Buy: Vanguard High Dividend Yield ETF (VYM)
- Expense Ratio: 0.08%, or $8 annually per $10,000 invested
- YTD Returns: 12% vs. 18% for the S&P 500
- SEC 30 Day Yield: 2.9%
Many investors seek the highest yields possible when looking at dividend stocks, but smart dividend plays aren’t all about the massive yield percentages. The Vanguard High Dividend Yield ETF (NYSEARCA:VYM) will fulfill most yield-hunters’ dreams, while also offering relative stability.
VYM encompasses more than 400 common dividend stocks with above-average dividend yields, making it an “every-man” dividend play. With top holdings like Johnson & Johnson (NYSE:JNJ), Exxon Mobil Corporation (NYSE:XOM) and AT&T Inc. (NYSE:T), this Vanguard ETF gives investors access to impressive yields but from well-known names.
Furthermore, its sector distribution is relatively balanced with 15% of its holdings in technology, 13% in consumer goods and healthcare and 14% in financials.
Best Dividend ETFs to Buy: Powershares KBW Premium Yield Equity REIT ETF
- Expense Ratio: 0.35%,
- YTD Returns: -5%
- SEC 30 Day Yield: 7.9%
The PowerShares KBW Premium Yield Equity REIT Portfolio (NASDAQ:KBWY) is a diversified way to play the popular trend of real estate investment trusts or REITs. REITs are a special kind of publicly traded company that is given tax breaks on real estate holdings as long as the corporation returns 90% of its taxable income back to shareholders.
That’s all but guarantees big dividend payouts to shareholders. But how do you decide which REIT is right for you?Thankfully, with KBWY you don’t have to. Just buy this diversified real estate play and enjoy annual payouts more than three times 10-Year Treasuries.
Admittedly, this is a sector-focused fund — and in 2017, the sector didn’t do so well and lagged the market considerably. But an optimistic outlook for 2018 coupled with a massive 7.9% yield makes this dividend stock ETF worth a look.
Best Dividend ETFs to Buy: WisdomTree U.S. Quality Dividend Growth Fund (DGRW)
- Expense Ratio: 0.28%
- YTD Returns: 22%
- SEC 30 Day Yield: 1.8%
Not all dividend stocks are created equal. While some investors look at stocks primarily for yield, others also want stocks that have growth potential. WisdomTree U.S. Quality Dividend Growth Fund (NASDAQ:DGRW) satisfies this need.
Top holdings include AbbVie Common Stock (NYSE:ABBV), Home Depot Inc (NYSE:HD) and McDonald’s Corporation (NYSE:MCD). As with VYM, its near-300 holdings are all large-cap companies, but the growth aspect sets it apart from other dividend ETFs. The yield isn’t quite as large, of course, but the outperformance of the fund itself with 22% YTD returns is noteworthy.
DGRW’s sector breakdown is fairly straightforward with roughly 20% being allocated to information technology, healthcare and industrial, and 17% in consumer discretionary stocks. Consumer staples finishes the noteworthy sector allocations at 12%, while financials, materials, energy and real estate only have a minor presence.
Best Dividend ETFs to Buy: Proshares S&P 500 Dividend Aristocrats ETF (NOBL)
- Expense Ratio: 0.35%
- YTD Returns: 17%
- SEC 30 Day Yield: 2.0%
Some investors only want the best of the best in terms of reliability when looking at dividend stocks. For those that fit this bill, the Proshares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) is the perfect fit.
This fund focuses only on dividend aristocrats — companies that have raised their dividends consistently for 25 years or more.
They might not be the sexiest names, but with top holdings like Chevron Corporation (NYSE:CVX), VF Corp (NYSE:VFC) and Dover Corp (NYSE:DOV), the NOBL fund will keep your mind at ease and your income high in the years ahead.
A large portion of NOBL’s holdings are based in the consumer staples sector (25%), while the industrial sector (18%) also gets some significant love. The remainder of its holdings range from 15% to 9% compositions in healthcare, consumer discretionary, financials and materials. Notably, energy (4%), information technology (2%) and utilities (2%) all take a backseat.
Best Dividend ETFs to Buy: WisdomTree SmallCap Dividend Fund (ETF) (DES)
- Expense Ratio: 0.38%
- YTD Returns: 5%
- SEC 30 Day Yield: 3.1%
All of the ETFs mentioned so far emphasize large-cap companies, but not all investors are interested in playing only megacorporations. They want their dividend stocks to be more diverse.
According to WisdomTree, the WisdomTree SmallCap Dividend Fund (ETF) (NYSEARCA:DES) is the only small-cap dividend ETF that focuses exclusively on the U.S. This means investors don’t have to venture into aggressive emerging markets when looking at higher-risk small-cap dividend plays with this ETF to buy.
The top holdings of DES focus on high-yield, small-cap names like video game retailer GameStop Corp. (NYSE:GME), petroleum refining company CVR Energy, Inc. (NYSE:CVI) and holding company Vector Group Ltd (NYSE:VGR).
Notably, DES has a higher allocation to the real estate sector (nearly 14%) compared to ETFs mentioned earlier. Other top sector weights include consumer discretionary (19%), industrials (18%) and financials (11%).
Best Dividend ETFs to Buy: SPDR S&P International Dividend (ETF) (DWX)
- Expense Ratio: 0.45%
- YTD Returns: 13%
- SEC 30 Day Yield: 3.2%
The SPDR S&P International Dividend (ETF) (NYSEARCA:DWX) is for more adventurous investors that want to invest in international dividend stocks. Along with its international focus, DWX only includes the 100 highest yielding stocks abroad.
That means this ETF satiates investors’ desire for yield while granting involvement in often over-looked investments like Canadian Imperial Bank of Commerce (USA) (NYSE:CM) and Munich Reinsurance Company (OTCMKTS:MURGY).
Unlike most of the ETFs on this list so far, DWX places a heavy emphasis on the financial sector (23%), which is closely followed by a near-20% allocation in utilities.
As far as countries and regions go, Canada (14%), the United Kingdom (13%) and Australia (11%) are the stars of DWX. However, it also gives some attention to Asia with near-7% weights in Hong Kong and Japan.
Best Dividend ETFs to Buy: PowerShares Preferred Portfolio(ETF) (PGX)
Expense Ratio: 0.50%
YTD Returns: 6%
SEC 30 Day Yield: 5.5%
With preferred stocks, investors are getting a kind of hybrid between stocks and bonds. In a nutshell, they trade-in voting rights for a higher dividend payout and increased insurance in case a company ends up going bankrupt. As such, preferred stocks offer investors some of the greatest stability possible along with impressive yields, even if share appreciation isn’t much to write home about.
Investors seeking income through preferred stocks should consider the PowerShares Preferred Portfolio(ETF) (NYSEARCA:PGX). With a massive sector allocation in financials (72%), you can expect to see gains from top holdings like HSBC Holdings plc (ADR) (NYSE:HSBC), Wells Fargo & Co (NYSE:WFC) and Citigroup Inc (NYSE:C).
Although the heavy emphasis on financials may seem intimidating, the fact that the fund deals with preferred stocks rather than common stock gives it an added layer of security.
Robert Waldo is an Assistant Editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.