Dividend ETFs Still Popular Despite Bond Yield Surge
Despite a surge in bond yields in 2022, investors are still flocking to ETFs that hold companies with consistent payouts of a portion of their profits.
Investors like these funds because they offer yields with potential to grow—unlike bonds, which typically offer fixed payments. Dividend ETFs also provide investors with exposure to stocks and the upside price appreciation potential that comes with it.
That said, dividend ETFs are not exactly comparable to bonds, and they do have their drawbacks. The risk and reward characteristics of these investment vehicles are quite different. Perhaps most importantly, dividend ETFs expose investors to equity market risk—for better or for worse.
Still, for investors who can look past the volatility of equities, dividend ETFs continue to be a viable alternative to fixed income for generating yield.
These are some of the top dividend ETFs ranked by various factors: assets under management, performance and flows.
Strong Inflows
Dividend ETFs have seen solid inflows this year: 10 most popular funds based on inflows have gathered a combined $32.2 billion on a year-to-date basis.
The Schwab U.S. Dividend Equity ETF (SCHD) tops the inflows list, with $8.9 billion of fresh cash from investors. The fund’s strategy of buying stocks of companies that have paid dividends for a minimum of 10 years has resulted in solid performance, which is clearly resonating with investors.
The Vanguard High Dividend Yield ETF (VYM)—which tracks high-yield stocks—also makes the top inflows list, with creations of $6.4 billion. VYM is a favorite for those seeking yield that is well above what you can get in a typical broad stock market fund.
Ticker | Fund | YTD Inflows ($M) |
Schwab U.S. Dividend Equity ETF | 8,903.03 | |
Vanguard High Dividend Yield ETF | 6,440.75 | |
iShares Core High Dividend ETF | 4,928.47 | |
iShares Core Dividend Growth ETF | 2,887.37 | |
iShares Select Dividend ETF | 2,216.22 | |
First Trust Rising Dividend Achievers ETF | 1,996.49 | |
SPDR S&P Dividend ETF | 1,783.46 | |
Vanguard Dividend Appreciation ETF | 1,661.70 | |
ProShares S&P 500 Dividend Aristocrats ETF | 1,109.33 | |
First Trust Value Line Dividend Index Fund | 231.64 |
Two Main Strategies
Many dividend ETFs focus on one of two strategies—high yield or dividend growth. Like many segments of the ETF market, the dividend space is top-heavy. Of the nearly $300 billion invested in U.S.-listed dividend ETFs, the top 10 funds account for 77% of these assets.
The biggest of them all is the $65 billion Vanguard Dividend Appreciation ETF (VIG). VIG targets dividend growth, holding stocks of U.S. companies that have grown their dividends for at least 10 consecutive years. The focus on dividend growth as opposed to high yields is an important distinction. VIG’s 30-day SEC yield of 1.81% is only modestly higher than the Vanguard S&P 500 ETF (VOO)’s equivalent yield of 1.49%.
But VIG’s underlying holdings have managed to increase their dividends much more consistently than the broader S&P 500, which results in higher yields over time.
The Vanguard High Dividend Yield ETF (VYM), whhich has $26.2 billion in AUM, takes the other dividend approach. VYM’s sole focus is yield, not growth. It simply holds the portion of the market with the highest dividend yields and then market-cap-weights them. The result is a juicier 2.9% yield, at the expense of the long-term growth of that yield.
The eight largest dividend ETFs after VIG and VYM all offer some form of high yield or dividend growth, and use various selection criteria.
The SPDR S&P Dividend ETF (SDY) only holds stocks of firms that have increased dividends over the past 20 years, while the First Trust Value Line Dividend Index Fund (FVD) includes an equal-weighted basket of dividend stocks, and the iShares Core High Dividend ETF (HDV) only holds stocks of companies with high earnings potential and dividend sustainability.
Largest Dividend ETFs
Ticker | Fund | Expense Ratio | AUM |
Vanguard Dividend Appreciation ETF | 0.06% | $65.03B | |
Vanguard High Dividend Yield ETF | 0.06% | $47.54B | |
Schwab U.S. Dividend Equity ETF | 0.06% | $38.19B | |
iShares Core Dividend Growth ETF | 0.08% | $24.16B | |
SPDR S&P Dividend ETF | 0.35% | $22.73B | |
iShares Select Dividend ETF | 0.38% | $22.42B | |
First Trust Value Line Dividend Index Fund | 0.67% | $12.64B | |
iShares Core High Dividend ETF | 0.08% | $12.52B | |
ProShares S&P 500 Dividend Aristocrats ETF | 0.35% | $10.51B | |
First Trust Rising Dividend Achievers ETF | 0.50% | $8.81B |
Varying Returns
The differing strategies have led to varying returns for these dividend ETFs. The top 10 best-performing dividend ETFs have year-to-date returns ranging from -10.2% to 5.3%—quite a large spread.
The iShares Core High Dividend ETF (HDV) leads the pack. The fund bolstered its returns by picking dividend stocks with strong financial health, a criteria that’s been favored in this year’s market environment.
On the other end of the spectrum, the First Trust Rising Dividend Achievers ETF (RDVY) was the worst performer among the top 10. Its large exposure to the technology sector, which makes up 27% of the fund, weighed on the ETF this year.
Dividend ETF Performance
Ticker | Fund | YTD Return (%) |
Vanguard Dividend Appreciation ETF | -6.78 | |
Vanguard High Dividend Yield ETF | -0.92 | |
Schwab U.S. Dividend Equity ETF | -2.84 | |
iShares Core Dividend Growth ETF | -4.75 | |
SPDR S&P Dividend ETF | 3.01 | |
iShares Select Dividend ETF | 4.78 | |
First Trust Value Line Dividend Index Fund | -1.72 | |
iShares Core High Dividend ETF | 5.34 | |
ProShares S&P 500 Dividend Aristocrats ETF | -3.02 | |
First Trust Rising Dividend Achievers ETF | -10.24 |
Follow Sumit Roy on Twitter @sumitroy2
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