Updated: Feb 17, 2023
Let's look at something boring today - Dividend ETFs.
There are just so many choices out there, it can get a little daunting. I screened through the universe of Dividend ETFs and came up with a list of 10. I give you my top 3 picks + an honorable mention.
The list is based on the following:
Returns from Dividends: We want a high level of dividends but, a stable stream as well
Beta: We want a low beta, i.e., lower than 1. This will mean it moves slower than the S&P so we don't lose capital in a volatile market
Expense Ratio: We want a low expense ratio so that are profits are not eaten up.
Solid Holdings: We want the the underlying holdings to be good companies
Good Sponsor such as JP Morgan, BlackRock who don't have bankruptcy risk
Longevity: I'd rather look at an ETF that's been around for a while with a low risk of closure.
FactSet Fund Grade: FactSet grades ETFs with A being the best, F being the worst based on how efficient and tradable the ETF is.
In terms of the return, I've looked at two different kind of returns
The Distribution Yield - which is the amount that they pay out or the dividend yield and this number is on a yearly basis
The 1 year return - this is price return so basically how much the ETF has moved in terms of market price.
After looking at a whole bunch of ETFs, I shortlisted the 11 names below based on a decent return, exposure to Large Caps (only DON is mid cap focused), and high FactSet Grade.
Based on the above universe, I took a deeper dive into each ETF and their holdings. I came up with my top 3 choices - SCHD, VYM, DVY and an honorable mention - JEPI.
(Full Disclosure: I do own some SCHD at $75.31.)
I like the underlying holdings for this fund. All stable companies and well balanced. The top 10 holdings are below. They also have a very low Expense Ratio, and are quite liquid.
Another large fund with very solid, boring holdings. But, boring is good because we're looking for stability. I see a lot of the Dividend Aristocrats in this fund.
DVY has a higher expense ratio and the top holdings cover more utilities. The combined return is decent but, they're not as liquid as the first two. Hence it's my third choice.
I tried to find out what was wrong with this ETF. How does it return 11%??
Well, it's because they use covered calls. This is not a dividend fund. It's an actively managed fund that's harvesting call premiums on the underlying holdings. If this was any other manager, I would have said caution. But, JPM and GS tend to know what they are doing, most of the time. The underlying holdings are also solid.
I hope you find this useful. I probably will think about adding some of the other funds to my portfolio just to diversify a little but I will wait 3 days after the publication of this article for compliance reasons.
As always, if you have any questions, I'm happy to answer them.