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The 5 Best Dividend ETFs to Own In 2023

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The 5 Best Dividend ETFs to Own In 2023

In this list you’ll find the 5 best dividend ETFs that you need to own this year if you are looking for above average, stable dividend payments.

Without further ado, Let’s go straight to the 5 ETFs, starting with the one with the highest Trailing Twelve Months dividend yield.

SPYD – SDPR portfolio S&P 500 High dividend ETF

SPYD – SPDR Portfolio S&P500 High Dividend ETF – Ideal Dividend ETF Portfolio – Source Rick Dago

The SPDR Portfolio S&P 500 High Dividend ETF (NYSEARCA: SPYD), takes a 10% slice of an ideal Dividend ETF Portfolio and has a really high but stable TTM dividend yield of 4.52%. This means that a 265,000$ portfolio today would yield you 1,000$ per month of free, easy dividend passive income.

If you were expecting a higher Dividend Yield, like the 11-12% of JEPI, last week I published a post and a video with an analysis on JEPI and I explained why it will not be able to deliver such a high yield in the future and will also underperform the market.

What I like about SPYD is of course the high dividend yield but, more than that, the potential to pay them quite sustainably based on the way they pick their companies. This ETF picks the top 80 companies with the highest dividend yields in the S&P500, so they are definitely safe and solid companies.

SPYD Dividend Growth YoY – Source: Stockanalysis.com

They overdid with the Dividend Yield in December of 2022, with a growth of 297.66% compared to the previous payment, and this has brought to a decline in March 2023. In general, though, they always managed to constantly grow their dividend payment.

The expense ratio on this ETF is 0.07%, namely you’ll pay 7$ yearly for a 10,000$ portfolio, and with over 6 billions in assets under management you can stay assured that the ETF is backed up by enough liquidity and trading volume. 

Another good part about this ETF, if you invest in it together with the other dividend ETFs that I will mention, is the sector allocation. In fact Real Estate covers 21% of the portfolio and, considering that the other ETFs on the list don’t cover this sector so much, you open yourself to a sector which typically pays really good dividends and diversify even more:

SPDR Sector Allocation – Source: ssga.com

Compared to a couple of months ago, one thing that I noticed is that they have strongly reduced the exposure to the energy sector. This is a good thing because the energy sector has grown so much since 2020, that I can expect a reduction in growth or even a drop in prices in the next few years.

Look for example at Exxon Mobil: from 2020 to today it grew roughly 300%, in just 2 years. Clearly this growth has been driven by the global energy crisis but it’s not sustainable and you can expect it to slow down soon.

Exxon Mobil Performance – Source Google Finance

DGRO – iShares Core Dividend Growth ETF

DGRO – iShares Core Dividend Growth ETF – Ideal Dividend ETF Portfolio – Source Rick Dago

Our Dividend ETF number 4 takes 10% of the cake and is the iShares Core Dividend Growth ETF (NYSEARCA: DGRO).

If you are unfamiliar with it, iShares is a collection of ETFs managed by BlackRock, which is the biggest Financial Management Company dealing in ETFs, followed by Vanguard, State Street, Invesco and Charles Schwab.

The fund was created in June 2014, so we don’t exactly have 10 years of track record. But if you invested 10,000$ in this ETF nine years ago, you’d now have 24,550$, which would give you 2. 39% of dividends according to last year, namely 587$ per year. 

DGRO 10Y Growth – Source Portfolio Visualizer

What I like about this ETF is the strategy they use. DGRO tracks the US dividend growth index from Morningstar, which is a dividend dollar weighted index that seeks to measure the performance of U.S companies selected based on a consistent history of growing dividends.

It has a high number of holdings, which gives us diversification and over 23 billions in assets  under management. 

Another interesting aspect of this ETF is that it gives you exposure also to small and medium cap, whereas all others that I will mention in this list focus on large cap. 

Beside this, another positive factor is how they pick their stock. DGRO screens for five consecutive years of dividend growth to identify the dividend growers. It looks for paid out dividends not exceeding 75% of earnings, which narrows in on companies with some growth potential and that may continue growing dividends.

One thing that I instead don’t like about how they pick the stocks is that they cut out the top 10% of dividend yielding stocks. They do it to reduce exposure to companies with unsustainably high dividend yields but the problem is that this takes away companies like Verizon or Altria or similar good companies. 

DGRO Growth – Source iShares.com

The expense ratio on this one is low at .08% and since inception in 2014 it has given a great annualized return of 10.71%,. Considering that YTD (Year To Date) we are sitting at -3.98%, this might be a good entry point for long term  investors.

DVY – iShares Select Dividend ETF

DVY – iShares Select Dividend ETF – Ideal Dividend ETF Portfolio – Source Rick Dago

The ETF number 3 is the iShares Select Dividend ETF (NASDAQ: DVY) takes 15% of the cake. 

This ETF had the absolute highest 10y total return right after SCHD amongst all existing Dividend ETFs, proving wonderful returns in the long term:

Dividend ETFs with best Performance – Source: Seekingalpha.com ETF Screener

The total growth of 194%, coming from the Seekingalpha ETF Screener, considers the reinvestment of dividends.

Complete this beautiful picture with 3.59% dividend yield and you understand the value of this Dividend ETF.

If you invested $10,000 in this ETF 10 years ago, you’d now have $26,013, which gives you a growth of 10.03% per year.

So how much are these dividends? 3.59% last year with an average of 3.50% in the last 4 years, so you’d need a portfolio of $334,000 to get $1,000 per month in clean, passive dividends. I know it sounds like a lot, but remember that we are talking about free money and that the ETFs that are able to give stable dividends for a long period of time usually revolve around 3%.

The fund has 22B$ in assets under management, an expense ratio of 0.38% and gives you access to exactly 100 broad-cap companies with a consistent history of dividends.

If you know me and my channel, you know that I always suggest ETFs containing at least 100 companies so here we are right on the limit, but it’s still acceptable for this etf.

The biggest exposure is to the utility sector with 28%, giving the fund a defensive character and stability in the Dividend distribution. Utility is followed by financial and consumer staples, which again, tend to be good dividend paying sectors.

DVY Exposure Breakdown – Source: iShares

VYM – Vanguard High Dividend Yield ETF

VYM – Vanguard High Dividend Yield ETF – Ideal Dividend ETF Portfolio – Source Rick Dago

The second dividend ETF that every investor should have in their portfolio is the Vanguard High Dividend Yield ETF (NYSEARCA: VYM) takes a 30% slice of the cake

If you’d invested 10.000$ ten years ago, you’d now have 26,298$ and that would yield you today 818$ yearly in dividends.

This fund tracks the performance of the FTSE® High Dividend Yield Index, an index that selects high yield dividend paying companies based in the US excluding REITs.

Like SCHD, this fund is passively managed, which means super low fees of 0.06%, and it’s highly diversified with 440 individual companies stocks in the portfolio.

The largest sectors are financials, health care and Consumer Staples, which are typically stable sectors and the top 10 companies within this fund have names like Exxon Mobil, JPMorgan, Johnson & Johnson, Procter & Gamble and Chevron Corporation:

VYM Portfolio Composition – Source Vanguard
VYM Main Holdings – Source Vanguard

The investment style of the fund is Large Value, meaning it invests in large mature companies that usually pay good dividends and have stable financials. 

In the last 10 years it’s had an average appreciation of 10.15% per year, which is great, and has a dividend yield of 3.11%. Another interesting point for its stability is that it managed to go down only 1.81% YTD, showing stability in a declining market.

So, is Vanguard High Dividend Yield ETF (VYM) a Strong ETF Right Now?

Well, it’s clearly one of your best choices if you want to outperform the most stable, dividend rich slice of the market which is large value, and considering the high diversification and the stability it’s shown in the past few years, you can be sure that this is an ETF that you should invest in for the long term.

SCHD – Schwab US Dividend Equity ETF

SCHD – Schwab US Dividend Equity ETF – Ideal Dividend ETF Portfolio – Source Rick Dago

The Schwab US Dividend Equity ETF (NYSEARCA: SCHD) takes 35% of this ideal Dividend ETF Portfolio. The best choice you have if you want to have a good stable growth but also a nice dividend payout every year.

SCHD yielded 3.61% and has held an average of 3% over the last 10 years:

SCHD Dividend Information – Source: Stock Analysis

If you’d invested $10,000 ten years ago, you’d now have 31,312$ and they would yield you now 1,130$ yearly only in dividends.

SCHD 10Y Growth – Source Portfolio Visualizer

I know, $1,000 in a year might not sound much to some of you, but consider that dividends are only a part of the growth of this ETF. In fact, in the last 10 years it even grew like the S&P500 index.  

As for the total return, in the last 10 years SCHD delivered 12.09% per year, giving a total of 213% over the last ten years. This equals the annual return of 12.22% of the S&P 500 over the same period:

Comparison SCHD-VOO – 10Y Growth – Source Portfolio Visualizer

A key reason why SCHD performed like S&P500 in the long term is that the total return comes from capital gains and compound dividend reinvestment. So not only the market price increased by almost 10% per year, but reinvesting the 3% dividends on top of that you get to the 12.73% per year we said before. 

If you are worried about the stability of the dividend yield, know that SCHD managed 10 consecutive years of dividend payment increases.

SCHD has all the positive characteristics that you expect from an ETF:

  1. Long history of positive returns
  2. Low expense ratio
  3. Over 100 holdings
  4. 47 billions in assets under management
  5. A wonderful return on Equity of 37.29%

and like icing on the cake it doesn’t just grow, but it also delivers dividends, which is one of the best gifts for passive income lovers. 

The fund tracks the returns of the Dow Jones U.S Dividend 100 Index, which in practice means companies with strong fundamentals that issue safe and high-quality dividends.

You’re going to get a mix of companies such as Abbvie, Pepsico, Cisco, UPS, Texas Instrument and Coca Cola:

SCHD Top Holdings – Source: schwabassetmanagement.com/

All sectors are well covered, with a stronger weight on information technology and financials, which is a good thing considering these sectors usually outperform in the long run:

SCHD Sector Composition – Source: schwabassetmanagement.com/

Should you own this ETF?

I think every investor should.

We are talking about a stable ETF, with a great long track record, that pays good dividends and delivered results which are just as good as the S&P500. If you like dividends, this is your first choice.

Conclusions

Of course, dividends are not everything. As an investor, except if you are over 50-60 years old I believe you should focus more on Capital appreciation. That’s why you should check out my post or my video where I illustrate the perfect ETF Portfolio for 2023. Here I give you the best 8 ETFs to invest in, covering growth and value, US and international and all the sectors.

You’re going to see that if you want the best growth overall the best ETFs you’ll find are not necessarily ETFs that distribute dividends to you.

If you want a free Compound Interest Calculator, get mine for free from here.

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