Best ETFs For Every Style & Strategy Of Dividend Investing

Looking for dividend growth, dividend quality or high yield in your portfolio? Looking for multiple strategies within a single ETF? Here's a dividend ETF for every situation!

Dividend stocks should be a core position in most portfolios. Unfortunately, the growth & tech driven equity market of the past, well, 15 years has taken a lot of shine off the group and left them ignored by a large segment of investors. In reality, they shouldn’t be giving up here despite the fact that the mega-cap tech companies have been almost entirely driving market returns.

Over the long-term, dividend stocks provide an important combination of capital growth, a steady income stream and lower volatility than the broader market. They’re important because they’re a fit for almost any investor - those who are in retirement and/or living off of their portfolios or are still years away from that point in time. Adding established, durable businesses that generate profits and cash flows always makes sense.

Dividend ETFs come in a lot of different flavors though and there are nearly 200 to choose from today. I often refer to the three pillars of dividend investing - dividend growth, dividend quality and high yield. You can choose ETFs that target any one of those pillars individually or you can choose the ones that target multiple strategies collectively.

Today, we’re going to review 15 dividend ETFs that do just that. No matter what “type” of dividend stock you’re looking to add to your portfolio, this list will have you covered. Each of them uses a smart strategy, is well-diversified, highly tradeable and, in some cases, incredibly cheap to own.

Total Dividends

Sometimes, simplicity is better. Instead of choosing between high yielders, dividend growers and quality names, it makes sense to just buy the entire dividend stock universe.

WisdomTree U.S. Total Dividend ETF (DTD)

That’s exactly what DTD does. It holds more than 800 different individual dividend stocks and its 2.3% yield is nearly 100 basis points higher than that of the S&P 500. If you’re looking for a great “set it and forget it” core dividend holding for your portfolio, this is a great choice.

Dividend Growth

Dividend growth stocks are incredibly popular among income seekers because 1) they provide very predictable dividend streams and 2) they usually provide a dividend increase every year. Those payouts often increase at a rate above the annual inflation rate, which means your purchasing power consistently keeps up with the times. While dividend history doesn’t always translate into future dividends, companies that have paid dividends for decades usually continue to pay and grow them.

Vanguard Dividend Appreciation ETF (VIG)

VIG requires a relatively modest 10 consecutive years of dividend growth, which accomplishes a couple of things. First, it ensures that companies have developed a commitment to dividend growth, which makes them far likelier to continue doing it into the future. Second, the requirement is lax enough that it allows for the inclusion of some “emerging” dividend payers, such as those in the tech sector. That gives VIG a nice growth/income combination.

ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

NOBL’s requirement of 25+ years of consecutive dividend growth produces a portfolio of incredibly durable and defensive companies. It won’t be exciting and it’s unlikely to be anything remotely resembling a growth portfolio, but it’s great for slow & steady dividend payments over time.

Dividend Quality

While no dividend is ever guaranteed, you can tip the scales in your favor and find the companies most likely to keep paying and growing their dividends. The downside of the dividend growth strategy is that it looks at history, it doesn’t consider the ability of companies to continue paying dividends into the future. The quality factor helps solve that problem. It can consider valuation metrics, such as price/earnings or price/book ratios, or it can look at balance sheet fundamentals, such as return on equity, profit margins or cash flows. It’s a great way to ensure that dividends can be maintained over the long-term.

ALPS O’Shares U.S. Quality Dividend ETF (OUSA)

OUSA may not be familiar to a lot of investors, but it actually has one of the better constructed dividend portfolios out there. It focuses on four factors - quality, low volatility, dividend yield and dividend quality. By looking at things, such as profitability, low debt, income and risk mitigation, it produces a portfolio of companies that have really cleared a high bar for inclusion.

Global X S&P 500 Quality Dividend ETF (QDIV)

QDIV takes a very simple and logical approach to portfolio constructions. It looks at several straightforward quality metrics, including accruals, financial leverage and return on equity. Because it also gives some consideration to yield, its current 3% yield will also be attractive to income seekers. And it’s one of the few equity ETFs to pay its dividends on a monthly basis!

Dividend Yield

High yield strategies can be a double-edged sword. On one hand, they can offer dividend yields that are triple that of the S&P 500. On the other hand, the dividend yield number can be deceptive. In some cases, high yields can be due to a falling share price, which in turn can mean that there’s a risk of a dividend cut. Adding a high dividend yield ETF to your portfolio in moderation can make sense, but you don’t want to get too enticed by those yields!

SPDR Portfolio S&P 500 High Dividend ETF (SPYD)

This is about as pure a pure high yield play as you’ll find. Its strategy is simple - take the 80 highest yielding securities from the S&P 500 and give them equal weighting. Its 4.8% yield is about as high as you’ll find within the U.S. equity space unless you’re willing to get more concentrated.

Vanguard High Dividend Yield ETF (VYM)

If you’ve read my work here before, you know I’m not the biggest fan of VYM. In fairness though, its more generalized approach to generating high yield does take some of the risk you might find in a product, such as SPYD, out of the equation. The 3.1% yield, of course, won’t be quite as attractive, but it does hold 450 different stocks and is one of the cheapest ETFs in the world to own.

Dividend Growth & Quality

In general, I’m a fan of multi-pronged dividend strategies. Looking at both dividend growth and quality together can act as a cross-check against each other to help avoid some of the companies that can look good by one metric but not by the other.

iShares Core Dividend Growth ETF (DGRO)

DGRO’s dividend growth screen is relatively lax - it requires just 5 years of increasing payments - but the additional payout ratio screen, which requires a stronger measure of dividend sustainability, helps counterbalance it. DGRO also eliminates the highest yielding stocks from its universe in order to eliminate some of the potential “bad actors” that could add volatility or dividend cut potential from the portfolio. The end product is a nicely balanced and diversified value-oriented portfolio.

WisdomTree U.S. Quality Dividend Growth ETF (DGRW)

DGRW looks at three primary factors in its security selection process - earnings growth forecasts, return on assets and return on equity. The “aggregate cash dividends paid” weighting methodology is unique and gives greater weightings to companies that pay out more cash to shareholders. DGRW has never really been a big yielder, but that’s not its goal. DGRW currently owns Morningstar’s highest 5-star rating.

Dividend Growth & Yield

The universe of dividend stocks that meet qualifications for dividend growth and high yield is fairly narrow. Companies that pay out generous yields and have been doing so for years have to be generating big cash flows in order to keep funding those payments. That probably means that they’re very mature, durable businesses that are leaders in their industry, but probably aren’t growing much.

SPDR S&P Dividend ETF (SDY)

SDY’s requirement of 20+ consecutive years of dividend growth comes close to meeting the “dividend aristocrat” definition, but the yield-weighting methodology for qualifying components differentiates it from traditional dividend growth strategies. While NOBL and VIG only yield around 2% even, SDY’s strategy improves that yield to 2.6% while maintaining the portfolio of durable, defensive, cash rich companies.

Invesco High Yield Equity Dividend Achievers ETF (PEY)

PEY follows a similar strategy to that of SDY, expect it requires on 10 years of dividend growth and limits the portfolio to only around 50 names. The result is that PEY starts with a more inclusive list of eligible components and includes only the highest of the high yields. The 4.9% yield that’s thrown off is quite attractive, but the portfolio ends up being very heavily value-tilted, something some investors may not want.

Dividend Quality & Yield

The combination of quality and yield in the security selection process is, in my opinion, very important. High yield is probably the riskiest of the three dividend pillars and the one most in need of a cross-check. Selecting stocks based on yield alone can be dangerous, but selecting stocks with high yields that are backed by strong balance sheet characteristics can reduce a lot of that risk.

FlexShares Quality Dividend Index ETF (QDF)

QDF has been a favorite of mine for a while due to its quant process that emphasizes cash flows, profitability and efficiency while at the same time trying to control risk and maximize yield. It’s a tall order for an ETF to successfully pull off, but QDF has managed it pretty consistently over its lifetime. If there’s a downside, it’s that the fund’s yield has dipped to around 2%, but the overall strategy is still solid.

SPDR Russell 1000 Yield Focus ETF (ONEY)

ONEY targets four factors in particular - high value, high quality, high yield and low size (meaning a smaller cap focus). The fund will own around 300 of the Russell 1000 names that look more attractive in its multi-factor scoring process. This is a really good example of how a high yield (3.7% in ONEY’s case) can be much more efficiently captured via a quality tilt.

Dividend Growth, Quality & Yield

This could be considered the holy grail of dividend investing - the companies that pay out above average dividend yields, have healthy balance sheets AND have been paying their dividends for years and years. With so many qualifying criteria, this is a very competitive landscape in which relatively few stocks make the cut.

Schwab U.S. Dividend Equity ETF (SCHD)

This is perhaps the most popular dividend ETF out there and the one that gets mentioned more than any other in my comment feed. SCHD starts out by layering several quality screens on top of a broad universe of dividend-paying stocks with a 10+ year history of payments, emphasizing dividend growth and yield as factors in the process. To get all of those dividend factors in one fund that charges just 0.06% annually is a downright steal.

iShares Select Dividend ETF (DVY)

DVY’s selection criteria aren’t quite as stringent as SCHD’s, but they produce a strong portfolio nonetheless. Perhaps DVY’s only real strike against it is its 0.38% expense ratio. That’s much higher than what you’ll find in many of the cheapest dividend ETFs out there, including VIG, VYM and SCHD. Those all charge less than 0.10% annually, putting DVY at a distinct disadvantage.

Summary

These funds get captured in my “Dividend Landscape” report, which gets published as part of my weekly market prep piece that usually goes out on Sundays.