These 6 Dividend ETFs Take Different Routes to Income
These ETFs offer options for generating dividend income, and it is important to understand their differences.
The market offers a variety of dividend ETFs, each with distinct strategies for generating income. The Schwab U.S. Dividend Equity ETF, for instance, boasts a 3% yield and a list of 100 stocks that have raised dividends annually for a decade. It employs a market-cap-weighted approach to select these companies based on free cash flow-to-total debt, return on equity, dividend yield, and dividend growth. This ETF achieves a balance between yield and growth, making it appealing to many investors.
Meanwhile, the Vanguard High Dividend Yield ETF takes a different route by focusing on the top 50% of U.S. dividend-paying stocks by yield, excluding REITs. With nearly 600 holdings, this ETF presents an alternative to an S&P 500 index ETF. Similarly, the iShares Core Dividend Growth ETF also excludes REITs and selects stocks with positive earnings forecasts, high payout ratios, and five years of consecutive dividend growth. Its portfolio is weighted by dividend payments, resulting in 391 stocks.
The Vanguard Dividend Appreciation ETF employs a simpler strategy, targeting stocks with 10 years of dividend increases but discarding the highest-yielding 25%. It uses market-cap weighting on the remaining 330 stocks, offering another option for dividend growth enthusiasts.
In contrast, the iShares Core High Dividend ETF prioritizes financially strong companies with competitive advantages, using Morningstar statistics and metrics like Economic Moat and Distance to Default. With a smaller 73-stock portfolio, this ETF yields approximately 2.8%, reflecting the stringent selection criteria.
Lastly, the iShares Dividend Select ETF has the highest yield among the listed ETFs, at roughly 3.3%. It includes stocks that have paid dividends for at least five years, maintain a dividend per share greater than or equal to its five-year average, and have a dividend coverage ratio of at least 167%. When comparing these ETFs, investors should remember that personal preferences play a significant role in selecting the right dividend-focused investment.
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