Investors are always looking to construct a portfolio that delivers attractive income without much considerable risk involved. For this purpose investors want to be creative in search of the right funds that create enough yields for them in the long run. Some look for the emerging market debts or junk bonds and some look for fixed income securities. Experts however, recommend the usage of dividend in a portfolio that will make a good investment strategy, thus finding the best dividend ETFs is crucial.
Investors tend to overlook dividend yields in the beginning. The appreciation the dividends pay off in 10 years is a fact that many novice investors do not realize in the first place. A 2% yield may seem minimum but a portfolio with an investment of $100,00 earning an average 2% annually and appreciating to $122,000 in 10 years or $150,000 in 20 years is something not to miss in the retirement age. According to S&P 500 dividend components provided a total return of 44% in the last 80 years.
In the few years of realizing high dividend yields, dividend paying stocks and mutual funds are becoming popular with investors. In 2011, US dividend focused ETFs experienced the third highest level of inflows amongst various categories of equity funds. There are stocks that provide consistent dividend payments to give the total return good boost making them some of the best dividend ETFs out there.
Best Large-Cap Dividend ETFs
One of the quickest ways to have access to the diversified dividend payers is through the inexpensive dividend ETFs. Some of the big names that generate constant dividends include the three most popular dividend ETFs in large-cap stocks.
- Vanguard Dividend Appreciation ETF (VIG)
- iShares Dow Jones Select Dividend Index (DVY)
- SPDR S&P Dividend ETF (SDY)
- First Trust Morningstar Dividend Leaders (FDL)
- State Street SPDR Dividend (SDY)
All three dividend ETFs have more than $5 billion in net assets. Vanguard dividend ETF is the cheapest with expense ratio of 0.18% which is 84% lower than the average expense ratio of funds with similar holdings. It has a 2.1% yield and 4.2% annualized five year return. It has around 127 stocks with total assets of $8.5 billion. Vanguard dividend ETF is generally recommended by experts to start off with.
iShares DVY has an expense ratio of 0.40% with total assets of $6.6 billion and a dividend yield of 3.72%. It has a total of 101 holdings in different large-cap markets. Whereas SPDR S&P Dividend ETF has an expense ratio of 0.35% with total assets of $6.8 billion and a dividend yield of 3.45%.
First Trust Morningstar Dividend Leaders has a market capitalization of $176 million with a dividend yield of 0.61%.
Best Small or Medium Cap Dividend ETFs
Large-cap stocks can make up a bulk of dividend seeking portfolio but it will be incomplete without the small and mid-cap dividend yielding names. There are not many firms that make consistent payments as dividends but can provide greater growth opportunities.
Smaller dividend players that will be a good addition to the portfolio include the following dividend ETFs.
- Wisdom Tree MidCap Dividend ETF (DON)
- Wisdom Tree Small Cap Dividend ETF (DES)
- SPDR Dow Jones Small Cap Value ETF (DSV)
Wisdom Tree MidCap Dividend ETF provides a yield of 2.48% with an expense ratio of 0.38%. It has a market capitalization of $290 million with 5 million shares. Wisdom Tree Small Cap Dividend ETF has a yield of 3.48% with market capitalization of $245 million. Generally experts recommend beginning with SPDR Dow Jones Small Cap Value ETF for a starting point for individual stock ideas. It has an expense ratio of 0.27% with a dividend yield of 1.58%.
Both of these funds are the best performing in mid-cap and small-cap market with small asset bases. The investors can get exposure to smaller and lesser known companies. These ETFs might not be as established as the large-cap dividend funds but they provide good and adequate diversification option for the investor’s portfolio. These ETFs should be kept for the smaller side.
Best International Dividend ETFs
A growing number of firms also place a premium on providing the shareholders with steady dividend payments. International firms outside the US are also good places for investors looking to diversify portfolio with dividend incomes.
- SPDR S&P International Dividend ETF (DWX)
- PowerShares International Dividend Achievers (PID)
- Wisdom Tree DEFA Fund (DWM)
The SPDR ETF offers a high dividend yield of 6.61%, higher than many other funds of the similar category in the international market. It invests in about 100 companies from around the world. It has an expense ratio of 0.45%.
PowerShares Dividend ETF provides a dividend yield of 4.8% with an expense ratio of 0.13%. It has a market capitalization of $544 million. Wisdom Tree DEFA Fund has approximately $458 million assets in international companies and provides a dividend yield of 3.5%.
These ETFs are comparably expensive and have approximately 88% of their assets invested in developed nations and 12% otherwise. There are ETFs in international market that focus particularly on a certain country like Japan or in the Middle East but it is good to keep a broad focus when investing abroad.
Emerging Markets Dividend ETFs
The dividend market is wide enough for investors looking to find the proper ETF to provide them with good long term returns. Emerging markets dividend players offer ETFs that are winners in the long term.
- SPDR S&P Emerging Markets Dividend ETF (EDIV)
- Wisdom Tree Emerging Markets Equity Income ETF (DEM)
- iShares JPMorgan USD Emerging Markets Bond Fund (EMB)
Both ETFs have been around for a long time and showed some impressive annualized return in that time. SPDR EDIV provides a yield of 0.24% with an expense ratio of 0.59%. Wisdom Tree DEM with an expense ratio of 0.63% provides an annual yield of 6.1% whereas iShare EMB provides a dividend yield of 4.9%.
For many yield seeking investors emerging markets ETFs might be on the verge of diminishing based on the performance of the past year. However, investors are choosing to invest in these ETFs based on the speculation of quick economic recovery.
There can be many best dividend ETFs based on the choice of investors. They are used both as source of income and to smooth returns to volatility. Many focus towards the larger capitalized ETFs but small cap and mid cap ETFs are not to be ignored as well.
