7 best dividend etfs of 2023?
While VYM outperformed SCHD in 2023, SCHD has outperformed VYM by 19.07% over the past 5 years. I am extremely diversified, so if I were to eliminate VYM, it wouldn't impact my diversification goal, and for some time, I considered exiting the position.
- SPDR S&P Emerging Markets Dividend ETF EDIV – Up 37.7%; Yield 4.39% annually.
- First Trust NASDAQ Technology Dividend Index Fund TDIV – Up 36.2%; Yield 1.68% annually.
- Nationwide Nasdaq-100 Risk-Managed Income ETF NUSI – Up 30.4%; Yield 7.05% annually.
While VYM outperformed SCHD in 2023, SCHD has outperformed VYM by 19.07% over the past 5 years. I am extremely diversified, so if I were to eliminate VYM, it wouldn't impact my diversification goal, and for some time, I considered exiting the position.
| Symbol | Name | Dividend Yield |
|---|---|---|
| OARK | YieldMax Innovation Option Income Strategy ETF | 47.53% |
| CONY | YieldMax COIN Option Income Strategy ETF | 37.47% |
| RATE | Global X Interest Rate Hedge ETF | 33.85% |
| MAXI | Simplify Bitcoin Strategy PLUS Income ETF | 32.14% |
These are VanEck Vectors Semiconductor ETF SMH, Invesco NASDAQ 100 ETF QQQM, Communication Services Select Sector SPDR Fund XLC, Vanguard Mega Cap Growth ETF MGK, and Vanguard Consumer Discretionary ETF VCR. These funds are likely to continue outperforming should the existing trends prevail.
In fact, an ETF called the Global X NASDAQ 100 Covered Call ETF (NASDAQ:QYLD), launched in 2013, currently boasts an eye-catching yield of 12%. While the ETF holds appeal for income investors, there are also several things that investors should be aware of before jumping in right after seeing that eye-popping yield.
The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) and the Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA:SPHD) are two popular dividend ETFs from leading asset managers. With a dividend yield of 4.5%, SPHD's yield is higher than SCHD's dividend yield of 3.5%.
However, the biggest advantage of SCHD is that its yield has been slowly growing at a predictable rate, while JEPI's yield is too volatile due to its strategy and portfolio composition, which might not be a good fit for a lot of investors who are aiming to have a predictable income.
The biggest driver of investor interest has been its strong and consistent track record. On an annual basis, almost like clockwork, SCHD has performed in the top 1/3 of its Morningstar category and had done so far a decade straight. That is, until 2023.
SCHD - Performance Comparison. In the year-to-date period, VOO achieves a 1.72% return, which is significantly higher than SCHD's 1.04% return. Over the past 10 years, VOO has outperformed SCHD with an annualized return of 12.58%, while SCHD has yielded a comparatively lower 11.58% annualized return.
How many dividend ETFs should I invest in?
For most personal investors, an optimal number of ETFs to hold would be 5 to 10 across asset classes, geographies, and other characteristics.
Pretty good deal! Not every ETF is quite so inexpensive, but they're usually inexpensive enough that they make a great alternative to researching, selecting and buying dividend stocks for yourself. Dividend stocks are one of the few asset classes that really deserve a place in almost every portfolio to some degree.
| Symbol | Name | 5-Year Return |
|---|---|---|
| IYW | iShares U.S. Technology ETF | 26.06% |
| FTEC | Fidelity MSCI Information Technology Index ETF | 25.10% |
| VGT | Vanguard Information Technology ETF | 24.93% |
| SPXL | Direxion Daily S&P 500 Bull 3X Shares | 24.36% |
| ETF | Expense ratio |
|---|---|
| SPDR S&P Regional Banking ETF (KRE) | 0.35% |
| ProShares Bitcoin Strategy ETF (BITO) | 0.95% |
| Vanguard Short-Term Corporate Bond ETF (VCSH) | 0.04% |
| iShares Core S&P 500 ETF (IVV) | 0.03% |
| Rank | Symbol | Fund Name |
|---|---|---|
| 1 | SPY | SPDR S&P 500 ETF Trust |
| 2 | IVV | iShares Core S&P 500 ETF |
| 3 | VOO | Vanguard S&P 500 ETF |
| 4 | VTI | Vanguard Total Stock Market ETF |
| ETF | Assets under management | Expense ratio |
|---|---|---|
| Vanguard Growth ETF (VUG) | $105 billion | 0.04% |
| Vanguard Information Technology ETF (VGT) | $60 billion | 0.10% |
| Schwab US Dividend Equity ETF (SCHD) | $52 billion | 0.06% |
| Vanguard Total Stock Market ETF (VTI) | $348 billion | 0.03% |
Dividend Yield: A high dividend yield is generally considered 4% or higher, but this can vary depending on the industry and market conditions. You should look for stocks with a consistent history of high dividend yields. Dividend Growth: You may also want to consider the growth rate of the company's dividend payments.
| Stock | Market capitalization | Dividend yield |
|---|---|---|
| Dynex Capital Inc. (DX) | $726 million | 12.2% |
| Horizon Technology Finance Corp. (HRZN) | $454 million | 9.7% |
| Permian Basin Royalty Trust (PBT) | $660 million | 4.2% |
| Pennant Park Floating Rate Capital Ltd. (PFLT) | $713 million | 10% |
The average dividend yield on S&P 500 index companies that pay a dividend historically fluctuates somewhere between 2% and 5%, depending on market conditions. 7 In general, it pays to do your homework on stocks yielding more than 8% to find out what is truly going on with the company.
Both funds are excellent, low-fee options for your portfolio. SCHD price and total return (including dividends) has outperformed VYM over a ten-year investment horizon (see chart below). Past performance is not indicative of future returns. VYM is better diversified, while SCHD has more holdings concentration risk.
Is SCHD a good long term hold?
SCHD's long-term track record of double-digit annualized returns over many years also inspires confidence that this is still a good place to be in the long term. Lastly, SCHD's expense ratio of just 0.06% is extremely favorable for investors, making this a compelling ETF to own in 2024 and beyond.
Over the past 10 years, SCHD has underperformed QQQ with an annualized return of 11.58%, while QQQ has yielded a comparatively higher 18.26% annualized return. The chart below displays the growth of a $10,000 investment in both assets, with all prices adjusted for splits and dividends.
The JPMorgan Equity Premium Income ETF (JEPI) and Schwab U.S. Dividend Equity ETF (SCHD) are popular options for dividend investors. JEPI offers lower volatility, higher dividend yield, and better risk-adjusted returns compared to SCHD.
Summary. Passive income is a great way to save for retirement. JEPI is popular among retirees due to its high yield, monthly payouts, and diversification that includes considerable tech exposure.
SPYI is more tax efficient than JEPI and is run with a goal of maximum income but also some capital appreciation (like DIVO has accomplished so far).
