10 Dividend Funds For Steady Income
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There are dividend funds for almost any kind of investors looking for steady payouts
Interest rates are rising in the U.S. and some other markets, but that is not standing in the way of solid dividend growth. Data confirm as much. In fact, global dividends recently ascended to a record high.
“Global dividends jumped 12.9% year-on-year in the second quarter to $497.4 billion, hitting a new record, according to a report on the Janus Henderson Global Dividend Index,” reports CNBC.
Importantly for owners of dividend funds, including exchange traded funds (ETFs), dividend growth across regions is proving robust.
“Payments rose in almost every region of the world in headline terms and records were broken in 12 countries including France, Japan, and the U.S.,” according to CNBC.
Boding well for owners of domestic dividend funds are these nuggets: U.S. second-quarter dividend growth checked in at 4.5% and there have only been four quarters over the past decade where U.S. payout growth slowed, according to the Janus Henderson report.
Investors looking for broad baskets of dividend-paying stocks should consider some of the following dividend funds.
Top Dividend Funds: ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
Expense Ratio: 0.35% per year, or $35 on a $10,000 investment.
12-Month Dividend Yield: 2.1%
The ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) is one of the premier dividend funds for investors looking for steadily rising payouts. NOBL follows the S&P 500 Dividend Aristocrats Index, which requires member firms to have dividend increase streaks of at least 25 years.
Many income investors are seduced by yield, but dividend growth has proven to be a winning long-term strategy. Scores of dividend funds dedicated to payout growth prove as much. NOBL turns 5 years old in October and in its nearly five years on the market, the ProShares fund has outperformed the yield-focused Morningstar Dividend Yield Focus Index by more than 1,600 basis points.
NOBL’s 53 holdings are equally weighted. The fund allocates almost 46% of its combined weight to the consumer staples and industrial sectors, two groups that are home to stocks with some of the longest dividend increase streaks in Corporate America.
Top Dividend Funds: ALPS Sector Dividend Dogs ETF (SDOG)
Expense Ratio: 0.4%
Dividend Yield: 3.4%
The ALPS Sector Dividend Dogs ETF (NYSEARCA:SDOG) is one of the dividend funds to consider for investors looking for yields in excess of typical broad market benchmarks. At the end of July, this dividend fund had a 30-day SEC yield of 3.7%, or more than double the 1.75% on the S&P 500. That also puts SDOG well ahead of the current yield on 10-year Treasuries.
The $2.3 billion SDOG identifies the “5 highest yielding securities (based on regular cash dividends) in each of the 10 Global Industry Classification Standard (GICS) sectors as of last trading day of November,” according to ALPS.
SDOG limits sector and individual stock risk by capping sector weights at 10% and individual securities at 2%. The recent resurgence in value stocks is benefiting this dividend fund, which has a value tilt. SDOG is up more than 4% over the past month.
Top Dividend Funds: Schwab US Dividend Equity ETF (SCHD)
Expense Ratio: 0.07%
Dividend Yield: 2.6%
With that paltry expense ratio, the Schwab US Dividend Equity ETF (NYSEARCA:SCHD) is one of the cheapest dividend funds on the market, but there are other reasons to consider this product. One of those reasons is SCHD’s above-average technology exposure.
SCHD allocates 19.6% of its weight to technology stocks, which compares favorably with other traditional dividend funds. This dividend fund requires member firms to have boosted payouts for at least 10 consecutive years. With more tech companies committing to dividend growth, it is reasonable to expect SCHD’s exposure to that sector will increase in the coming years.
“In the third quarter, Bloomberg projects tech companies could distribute about $20 billion in dividends to shareholders, followed by financials with $17 billion, health care at $14 billion and consumer staples at $13 billion,” according to ETF Trends.
Top Dividend Funds: WisdomTree U.S. Quality Dividend Growth Fund (DGRW)
Expense Ratio: 0.28%
Dividend Yield: 1.9%
The WisdomTree U.S. Quality Dividend Growth Fund (NASDAQ:DGRW) is an example of dividend fund that takes a different approach to identifying stocks likely to boost dividends. While traditional dividend funds merely focus on dividend increase streaks as a means of isolating dividend growers, DGRW employs growth and quality factors.
Those criteria include return on equity, return on assets and earnings growth expectations. DGRW, recently turned five years old and is proving that even at a time when non-dividend payers have delivered nice returns, the right dividend strategy can also deliver for investors.
“A broad approach that assigns greater weight to companies consistently rewarding their shareholders via dividends and share buybacks can result in superior aggregate total returns—even amid a sustained rally from non-dividend-paying companies,” said WisdomTree.
Top Dividend Funds: Oppenheimer Ultra Dividend Revenue ETF (RDIV)
Expense Ratio: 0.39%
Dividend Yield: 4.1%
The Oppenheimer Ultra Dividend Revenue ETF (NYSEARCA:RDIV) is one of this year’s steadiest dividend funds. With a gain of more than 10% over the past six months, this revenue-weighted dividend funds currently resides near record highs.
Components in RDIV’s underlying index are weighted by top-line revenue, not market capitalization, yield or other standard weighting schemes seen in other dividend funds. This dividend fund’s weighting methodology helps steer investors away from stocks that are potentially overvalued while reducing sector concentration risk.
RDIV is a good dividend fund for long-term investors to consider because data indicate that over the course of the current U.S. bull market, a revenue-weighted version of the S&P 500 outperformed the cap-weighted S&P 500.
Top Dividend Funds: ProShares Russell 2000 Dividend Growers ETF (SMDV)
Expense Ratio: 0.4%
Dividend Yield: 2.1%
Some dividend funds provide investors with exposure to smaller stocks, a strategy to consider, particularly for conservative investors looking for small-cap exposure. One reason for that line of thinking is that small-cap dividend payers are, over longer holding periods, significantly less volatile than their non-dividend counterparts.
The ProShares Russell 2000 Dividend Growers ETF (BATS:SMDV) features members of the widely followed Russell 2000 Index that have boosted payouts for at least 10 straight years. Predictably, that requirement leaves SMDV with a small lineup of just 61 stocks.
That is not a strike against this dividend fund. SMDV is up nearly 8% year-to-date and has a distribution yield of 2.1%, or about 90 basis points above the yield on the Russell 2000.
Top Dividend Funds: Vanguard High Dividend Yield ETF (VYM)
Expense Ratio: 0.08%
Dividend Yield: 2.9%
Home to $22 billion in assets under management, the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is one of the largest dividend funds trading in the U.S. It is also one of the least expensive. In fact, VYM is 92% less expensive than the average costs of of competing strategies, according to Vanguard data.
Over the long run, VYM has been one of the most successful high-dividend strategies in large part because it is not overly reliant on sectors that are typically associated with high yields. This dividend fund has no exposure to real estate stocks and telecommunications and utilities combine for less than 12% of the fund’s weight.
VYM yields 2.9%, or about 65 basis points below the Morningstar Dividend Yield Focus Index. Sector attribution has kept this dividend fund mostly steady in the face of rising interest rates, a factor for income investors with the Federal Reserve expected to boost borrowing costs two more times before the end of 2018.
Top Dividend Funds: iShares International Select Dividend ETF (IDV)
Expense Ratio: 0.5%
Dividend Yield: 4.6%
International dividend funds can be valid income-generating instruments as well as important in enhancing portfolio diversification. The $4.48 billion IDV tracks the Dow Jones EPAC Select Dividend Index and holds almost 100 stocks.
An another advantage of international dividend payers is the potential for higher yields relative to U.S. counterparts. IDV bears that thesis out with a trailing 12-month dividend yield of 4.6%, which is well above the yield on comparable domestic dividend funds.
IDV allocates about 41.6% of its weight to the U.K. and Australia, two of the strongest ex-US dividend growth markets. This dividend fund’s three-year standard deviation of 12.28% is mostly inline with that of the MSCI EAFE Index.
Top Dividend Funds: WisdomTree International High Dividend Fund (DTH)
Expense Ratio: 0.58%
Dividend Yield: 8.5%
Keeping with the theme of international dividend funds, the WisdomTree International High Dividend Fund (NYSEARCA:DTH). DTH focuses on high dividend stocks in developed markets excluding the U.S. and Canada. This dividend fund’s underlying index weights components based on cash dividends paid.
DTH’s geographic lineup makes for an easy comparison with the MSCI EAFE Index. Since this dividend fund’s inception in mid-2006, the fund has topped the MSCI EAFE Value Index. From 2013 through 2017, DTH outperformed the MSCI EAFE Index in three of those five years.
Top Dividend Funds: First Trust NASDAQ Technology Dividend ETF (TDIV)
Expense Ratio: 0.5%
Dividend Yield: 2.4%
Tech dividends are a theme highlighted earlier in this piece and the First Trust NASDAQ Technology Dividend ETF (NASDAQ:TDIV) is a fund dedicated to that theme.
Remembering that tech dividends are a relatively new concept and that the sector is not high yielding, TDIV does not consider dividend growth streaks in its weighting methodology and its yield requirement is skimpy. To be part of TDIV’s lineup, companies must have paid a dividend over the past year and yield at least 0.5%.
This dividend fund’s trailing 12-month yield of 2.37% is decent and enhanced by the fund’s requirement of a 20% allocation to higher yielding telecom names. Apple (NASDAQ:AAPL), Cisco Systems (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT) combine for a quarter of TDIV’s weight.
As of this writing, Todd Shriber owns shares of DGRW.
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Category: Dividend ETFs
