Demystifying Dividend ETFs: Finding the Right Fit for Your Investment Strategy

As the title implies, the focus of this article is mainly on assisting individuals who are new to the world of dividend investing. Once you've made the choice to embark on the path of dividend investing, the question that naturally arises is: "How do we go about the process of selecting dividend-paying stocks?" There is a multitude of factors to take into account when it comes to choosing dividend stocks, including metrics like the Price-to-Earnings (P/E) ratio, dividend payout ratio, dividend yield, dividend history, and free cash flow, to name just a few. It's important to note that nearly every dividend investor typically employs their own set of criteria for screening dividend stocks. Developing a reliable dividend stock screening method is a task that evolves with time and experience, and it may take a while to create a proficient dividend stock screener. Another viable option is to follow in the footsteps of established dividend investors who have already charted the course to success.

Lacking sufficient capital can pose a considerable challenge when attempting to construct a diversified investment portfolio. Even acquiring a mere five individual stocks can be a non-trivial endeavor due to the financial constraints it may entail. Inexperienced investors often grapple with the critical question of when the optimal moment to purchase a particular stock might be. This is where Exchange-Traded Funds (ETFs) come into play as a viable alternative. ETFs offer an affordable means to gain exposure to a broad and diversified selection of stocks.

In this article, I will delve into a comprehensive analysis of the top 10 dividend-themed ETFs, primarily based on their Assets under Management (AUM). Assets under Management, often referred to as AUM, is a metric that quantifies the total market value of all the assets managed by an ETF on behalf of its clients. To draw a parallel, this metric is analogous to the market capitalization of individual stocks. It's crucial to recognize that each dividend-themed ETF aligns with a specific investment theme. These themes can vary widely, with some ETFs focusing on dividend quality, while others prioritize dividend yield. To gain a deeper understanding of investing with ETFs and to explore various options, I recommend reading my detailed article on this subject (ETF/Mutual fund investing).

#1 Vanguard Dividend Appreciation ETF (VIG)

Unsurprisingly, Vanguard holds the title of managing the largest dividend ETF in the market. I've previously crafted an in-depth article that provides comprehensive insights into this specific ETF. If you're contemplating the inclusion of VIG in your core investment portfolio, I strongly recommend giving it a thorough read. This article can serve as a valuable resource to help you make an informed decision regarding VIG and its potential role in your investment strategy.

Price	$101.86
Assets Under Management	$27.513 billion
Annualized Dividend	$1.853
Yield	1.819%
50-day moving average	$101.257

Sector Diversification: Basic Materials 4.20%, Consumer Goods 10.80%, Consumer Services 19.70%, Financials 8.80%, Health Care 12.20%, Industrials 32.30%, Oil & Gas 0.00%, Technology 8.70%, Utilities 3.20% and Telecommunications 0.10%.

Top 10 Holdings: Microsoft Corp., Walmart Inc., Johnson & Johnson, PepsiCo Inc., McDonald's Corp., 3M Co., Medtronic plc, Union Pacific Corp., Abbott Laboratories and Texas Instruments Inc.

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#2 Vanguard High Dividend Yield ETF (VYM)

Once again, Vanguard takes the spotlight with the Vanguard High Dividend Yield ETF, commonly known as VYM. It should come as no surprise that VYM is considered one of the best dividend-focused exchange-traded funds (ETFs) available. As a dividend investor myself, I proudly include VYM in my investment portfolio. For a more in-depth look at what makes VYM an excellent choice for dividend-focused investors, I've previously published a comprehensive post dedicated to this fund. I encourage you to read that article to gain a deeper understanding of how VYM can potentially enhance your dividend investment strategy.

Price	$84.31
Assets Under Management	$21.01 billion
Annualized Dividend	$2.45
Yield	2.903%
50-day moving average	$83.274

Sector Diversification: Basic Materials 3.80%, Consumer Goods 11.70%, Consumer Services 6.10%, Financials 14.10%, Health Care 13.00%, Industrials 12.50%, Oil & Gas 10.10%, Technology 16.90%, Telecommunications 4.30% and Utilities 7.50%.

Top 10 Holdings: Microsoft Corp., JPMorgan Chase & Co., Johnson & Johnson, Exxon Mobil Corp., Intel Corp., Chevron Corp., Wells Fargo & Co., Cisco Systems Inc., Pfizer Inc. and Verizon Communications Inc.

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#3 iShares Select Dividend ETF (DVY)

DVY is an exchange-traded fund (ETF) offered by BlackRock, a financial giant recognized as the world's largest asset manager, boasting an impressive $6.3 trillion in assets under management, as of 2017. This ETF is tailored for investors seeking to harness the power of dividends for wealth accumulation. DVY's investment strategy focuses on stocks with a noteworthy track record of dividend payments spanning at least five years. Among this select group of dividend-paying stocks, DVY meticulously identifies and selects the top 100 based on their dividend yield. This unique approach creates a blend of both dividend quality and income, making DVY a compelling choice for investors interested in this combination.

Price	$97.4
Assets Under Management	$16.831 billion
Annualized Dividend	$3.035
Yield	3.117%
50-day moving average	$95.886

Sector Diversification: Utilities 29.27%, Consumer Discretionary 14.97%, Energy 12.07%, Financials 9.74%, Materials 7.15%, Consumer Staples 6.92%, Industrials 6.09%, Information Technology 5.86%, Telecommunications 3.97% and Health Care 3.57%.

Top 10 Holdings: CENTURYLINK INC, ONEOK INC, OCCIDENTAL PETROLEUM CORP, F MOTOR, PPL CORP, SEAGATE TECHNOLOGY PLC, AT&T INC, ENTERGY CORP, FIRST ENERGY CORP and CHEVRON CORP.

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#4 SPDR S&P Dividend ETF (SDY)

The SPDR S&P Dividend ETF (SDY) stands out as an exceptional investment option for those seeking to tap into the power of long-term dividend growth. This ETF is tailored to attract investors interested in stocks with an impressive track record of consecutive dividend increases spanning at least 20 years. SDY employs a weighting methodology that prioritizes dividend yield, making it a top choice for those who value both quality and income in their investment portfolio. The combination of this quality-first approach with a focus on higher-yield opportunities positions SDY as a formidable contender for those looking to bolster their dividend income while fostering long-term growth.

Price	$92.03
Assets Under Management	$15.333 billion
Annualized Dividend	$2.118
Yield	2.302%
50-day moving average	$91.478

Sector Diversification: Financials 15.54%, Consumer Staples 15.36%, Industrials 13.44%, Utilities 13.06%, Consumer Discretionary 10.55%, Materials 9.15%, Real Estate 8.28%, Health Care 6.04%, Energy 3.15%, Information Technology 2.72% and Telecommunication Services 2.70%.

Top 10 Holdings: Realty Income Corporation, AT&T Inc., National Retail Properties Inc., Tanger Factory Outlet Centers Inc., AbbVie Inc., Exxon Mobil Corporation, Chevron Corporation, Meredith Corporation, International Business Machines Corporation and Kimberly-Clark Corporation.

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#5 Schwab U.S. Dividend Equity ETF (SCHD)

SCHD, the Schwab U.S. Dividend Equity ETF, is strategically designed to replicate the performance of the Dow Jones U.S. Dividend 100™ Index. To achieve this goal, the ETF employs three stringent screening rules, ensuring that its holdings meet specific criteria for dividend quality and market presence. The screening criteria for SCHD encompass a history of 10 consecutive years of dividend payments, a minimum market capitalization of 500 million dollars, and a robust average daily trading volume exceeding US$ 2 million over a three-month period. These rules act as a filter, enabling SCHD to compile a portfolio that aligns with these key prerequisites, potentially offering investors a balanced blend of dividend growth and market stability.

Price	$49.54
Assets Under Management	$7.421 billion
Annualized Dividend	$1.286
Yield	2.595%
50-day moving average	$49.051

Sector Diversification: Consumer Staples 24.94%, Information Technology 20.11%, Industrials 18.95%, Consumer Discretionary 11.37%, Energy 7.09%, Health Care 5.27%, Financials 5.21%, Telecommunication Services 4.50%, Materials 1.87% and Utilities 0.69%.

Top 10 Holdings: EXXON MOBIL CORP, INTEL CORP, HOME DEPOT , PFIZER INC, VERIZON COMMUNICATIONS INC, WALMART INC, PROCTER & GAMBLE CO, International Business Machines CORP, PEPSICO INC and MMM.

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#6 iShares Core High Dividend ETF (HDV)

The iShares Core High Dividend ETF is dedicated to delivering an investment strategy that revolves around the selection of the top 75 stocks, identified by their dividend yield. These stocks are meticulously screened for their financial health, quality, and the sustainability of their dividends, utilizing Morningstar, Inc.'s proprietary index methodology. Morningstar's index methodology places a strong emphasis on "company quality," assessing it in accordance with the renowned Morningstar Economic Moat rating system. In addition to this quality evaluation, the selection process involves rigorous screening for financial health, determined by Morningstar's Distance to Default measure. This meticulous approach ensures that the iShares Core High Dividend ETF brings together a portfolio of stocks that collectively embody both dividend income and robust fundamentals, potentially aligning with the financial objectives of investors.

Price	$84.91
Assets Under Management	$5.969 billion
Annualized Dividend	$2.998
Yield	3.531%
50-day moving average	$84.906

Sector Diversification: Energy 20.98%, Consumer Staples 18.27%, Health Care 17.74%, Telecommunications 12.83%, Utilities 8.77%, Information Technology 7.17%, Financials 5.47%, Industrials 4.10%, Consumer Discretionary 4.09% and Materials 0.07%.

Top 10 Holdings: EXXON MOBIL CORP, AT&T INC, CHEVRON CORP, VERIZON COMMUNICATIONS INC, JOHNSON & JOHNSON, PFIZER INC, WELLS FARGO, PROCTER & GAMBLE, MERCK & CO INC and CISCO SYSTEMS INC.

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#7 iShares International Select Dividend ETF (IDV)

I was genuinely surprised to find an international ETF securing a spot in the top 10 dividend ETFs. This remarkable fund replicates the holdings of the Dow Jones EPAC Select Dividend Index, showcasing a robust selection criterion. For a stock to qualify for inclusion in this prestigious index, it must meet several stringent requirements: 

1. Dividend History: The stock should have a history of paying dividends for at least three consecutive years. Dividend Growth: The dividend paid in the previous year must be greater than or equal to its three-year average annual dividend-per-share. 
2. Coverage Ratio: The five-year average dividend coverage ratio must be greater than or equal to two-thirds of the five-year average dividend coverage ratio of the corresponding Dow Jones Global Indexes® country index, or greater than 118%, whichever criterion is more demanding. 
3. Trading Volume: The stock must exhibit a robust presence in the market, with a three-month average daily dollar trading volume of at least $3 million. 
4. Earnings Per Share (EPS): The stock must maintain a non-negative trailing 12-month EPS, signifying a level of profitability. 
5. Market Capitalization: Finally, the stock should boast a float-adjusted market capitalization of at least $1 billion. 

The meticulous nature of this selection process ensures that the Global Dividend ETF aspires to provide investors with a diversified portfolio of international dividend-paying stocks that meet rigorous financial criteria, potentially appealing to those seeking both global exposure and dividend income.

Price	$34.04
Assets Under Management	$4.936 billion
Annualized Dividend	$1.506
Yield	4.425%
50-day moving average	$33.605

Country Diversification: United Kingdom 25.03%, Australia 15.62%, France 8.46%, Canada 6.33%, Sweden 6.19%, Italy 6.09%, Spain 5.64%, Finland 4.08%, Norway 3.81%, Switzerland 3.15%, Germany 3.04%, Hong Kong 2.59%, New Zealand 2.12%, Portugal 1.41% and Korea (South) 1.18%.

Top 10 Holdings: ASTRAZENECA PLC, MACQUARIE GROUP LTD DEF, ROYAL DUTCH SHELL PLC CLASS A, COMMONWEALTH BANK OF AUSTRALIA, GALLIFORD TRY PLC, VTECH HOLDINGS LTD, SSE PLC, ENI, TOTAL SA and SALMAR ASA.

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#8 First Trust Value Line Dividend Index Fund (FVD)

The First Trust Value Line Dividend Index Fund (FVD) is a strategic investment vehicle that focuses on stocks included in the Value Line Dividend Index. FVD employs a set of sophisticated criteria to meticulously select its constituent stocks. To get an in-depth understanding of their selection process, I strongly recommend reading their detailed selection criteria, which can be found here. This fund's rigorous approach to stock selection is designed to offer investors a diversified and high-quality portfolio tailored to those who value precise and systematic investment strategies.

Price	$29.99
Assets Under Management	$4.057 billion
Annualized Dividend	$0.626
Yield	2.088%
50-day moving average	$29.897

Sector Diversification: Utilities 22.24%, Financials 17.64%, Consumer Staples 14.28%, Industrials 13.53%, Consumer Discretionary 7.84%, Health Care 6.26%, Information Technology 6.14%, Real Estate 4.27%, Energy 3.11%, Materials 3.11% and Telecommunication Services 1.58%.

Top 10 Holdings: QUALCOMM Incorporated, Texas Instruments Incorporated, WPP Plc (ADR), T. Rowe Price Group, Inc., Automatic Data Processing, Inc., El Paso Electric Company, Phillips 66, Analog Devices, Inc., Diageo Plc (ADR) and Intel Corporation.

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#9 iShares Core Dividend Growth ETF (DGRO)

The iShares Core Dividend Growth ETF is designed to invest in companies that have maintained at least five consecutive years of increasing dividends, all while maintaining a payout ratio of no more than 75%. This selective approach makes it an appealing choice for investors seeking steady and reliable income from their investments.

Price	$34.6
Assets Under Management	$3.546 billion
Annualized Dividend	$0.718
Yield	2.075%
50-day moving average	$34.21

Sector Diversification: Financials 18.99%, Health Care 16.90%, Information Technology 16.56%, Industrials 14.06%, Consumer Staples 11.46%, Consumer Discretionary 10.00%, Utilities 5.24%, Materials 4.55%, Energy 1.82%, Real Estate 0.01% and Telecommunications 0.00%.

Top 10 Holdings: APPLE INC, MICROSOFT CORP, PFIZER INC, JOHNSON & JOHNSON, JPMORGAN CHASE & CO, WELLS FARGO, PROCTER & GAMBLE, MERCK & CO INC, CISCO SYSTEMS INC and COCA-COLA.

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#10 ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

The ProShares S&P 500 Dividend Aristocrats ETF focuses on companies with a remarkable track record of at least 25 consecutive years of dividend increases. This unique strategy makes it an attractive option for investors looking for long-term dividend growth and reliability in their portfolios.

Price	$62.76
Assets Under Management	$3.505 billion
Annualized Dividend	$1.163
Yield	1.852%
50-day moving average	$62.402

Sector Diversification: Consumer Staples 24.74%, Industrials 21.39%, Materials 11.29%, Health Care 11.07%, Consumer Discretionary 10.78%, Financials 9.49%, Energy 3.47%, Utilities 1.99%, Telecommunication Services 1.96% and Information Technology 1.91%.

Top 10 Holdings: McCormick & Co. Inc., S&P Global Inc., W.W. Grainger Inc., Cintas Corp., Archer Daniels Midland Co., Roper Technologies Inc., General Dynamics Corp., Ecolab Inc., Hormel Foods Corp. and Aflac Inc.

Ticker	Consumer Staples	Consumer Discretionary	Financials	Health Care	Industrials	Materials	Real Estate	Technology	Telecommunications	Utilities
VIG	10.8%	19.7%	8.8%	12.2%	32.3%	4.2%	0.0%	8.7%	0.1%	3.2%
VYM	11.7%	6.1%	14.1%	13.0%	12.5%	3.8%	0.0%	16.9%	4.3%	7.5%
DVY	15.19%	6.97%	9.76%	3.55%	6.13%	7.24%	0.0%	5.91%	3.93%	28.68%
SDY	10.55%	15.36%	15.54%	6.04%	13.44%	9.15%	8.28%	2.72%	2.7%	13.06%
SCHD	11.37%	24.94%	5.21%	5.27%	18.95%	1.87%	0.0%	20.11%	4.5%	0.69%
HDV	4.09%	18.27%	5.47%	17.74%	4.1%	0.07%	0.0%	7.17%	12.83%	8.77%
FDV	8.53%	13.9%	16.83%	6.75%	13.44%	3.13%	4.26%	6.54%	1.52%	21.82%
DGRO	10.0%	11.46%	18.99%	16.9%	14.06%	4.55%	0.01%	16.56%	0.0%	5.24%
NOBL	10.78%	24.74%	9.49%	11.07%	21.39%	11.29%	0.0%	1.91%	1.96%	1.99%

Selecting the perfect dividend ETF can be a challenging task, as each ETF caters to a specific investment paradigm. Personally, I hold both VIG and VYM, and they offer a balanced mix of quality and high-yield dividend stocks while being cost-effective. The fact that they trade for free on Vanguard is an additional advantage.

Interestingly, it's worth noting that most dividend ETFs exclude Real Estate Investment Trusts (REITs), with SDY and FDV being among the few ETFs that provide exposure to REITs. A common trend among these ETFs is their strong affinity for Consumer Staples and Consumer Discretionary stocks. Dividend ETFs, in general, offer a cost-effective way to gain exposure to a diversified portfolio of dividend-paying stocks. Many of the holdings in these ETFs are well-known in the dividend community. They provide a convenient and "lazy" approach to dividend investing, which can be especially appealing for those with limited time for in-depth due diligence on individual stocks. However, it's crucial to remember that dividend ETFs might not be suitable for everyone. Before investing, it's important to thoroughly understand the associated risks and rewards of each ETF to align them with your investment objectives and risk tolerance.

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