7 Dividend ETFs To Buy And Watch For 2021

image

Dividends have long been a favorite of investment gurus from Warren Buffett to late Vanguard Group founder John Bogle, and it’s easy to see why. Who wouldn’t want to generate a steady income stream from their stock portfolio?

Individual stocks can provide income, but dividend ETFs are an easy way to gain exposure to a basket of dividend-paying stocks. We present below seven of the most popular dividend ETFs to invest in this year, ranked by order of assets.

A dividend stock refers to a company that distributes some of its earnings to shareholders — usually in cash or stock. The company’s board of directors figure out what percentage of earnings to pay out to shareholders, while the rest goes back into the company.

Most companies offer quarterly dividends. With a stock dividend, a company distributes additional shares instead of cash. (Read this column for details about how to search for the best dividend growth stocks now.)

What is an ETF and how do ETFs work? An exchange traded fund is a basket of stocks. That’s similar to a mutual fund, but an ETF trades like an individual stock. An ETF can provide exposure to the broad market, an industry sector or other subsegment, generally with less risk than owning individual stocks.

For instance, if you own only shares of Company A, you are fully exposed if the stock drops. But with an ETF, you might own Company A along with many other stocks in the same industry, lessening the risk of each component.

Dividend ETFs combine the two investment choices. The funds own a basket of dividend-paying stocks.

Choices abound. About 70 U.S.-listed ETFs contain “dividend” in their name, according to Morningstar Direct.

You can further slice and dice within the dividend ETFs universe, based on everything from market cap to dividend growers to emerging markets.

Here are four questions to ask yourself when considering dividend ETFs to buy.

What is the Dividend ETF’s Objective?

Not all dividend ETFs are created equal. Some funds target companies that have increased their payouts annually for a minimum number of years. Others may focus on companies paying the highest yields.

The name of the dividend ETF will usually indicate its objective. But it’s always a good idea to check a fund’s objective and strategy, whether online or in its prospectus. That way, you can make sure the dividend ETF is aligned with your goals.

How Have the Dividend ETFs Performed?

Just as you check a stock’s earnings history or a mutual fund’s performance track record, find out what kinds of returns the ETF is generating. You should be able to access the data at the ETF issuer’s website or a fund tracker such as Morningstar Inc.

Be sure to look at the year-to-date performance, as well as three-year and five-year average annual returns for the dividend ETFs you’re considering.

What is the Dividend ETF’s Annualized Yield?

You can see a dividend ETF’s annual payout on its prospectus or its website. To calculate the dividend yield yourself, divide the most recent dividend payment by the net asset value, or share price of the fund.

To figure out if it’s bigger than average, compare the fund’s yield to that of the S&P 500, an oft-used benchmark for an average dividend payout.

How Much Does the Dividend ETF Cost?

To find out how much it costs to buy a dividend ETF, look for its expense ratio online or in the fund’s prospectus. The expense ratio, which includes the ETF’s operational costs, is a percentage of the fund’s average net assets.

In general, passive index funds have the lowest expense ratios, while actively managed ETFs tend to cost more. The expense ratio is calculated annually.

Seven Dividend ETFs To Consider In 2021

Ranked by assets, as of Oct. 11 (S&P 500 yield as of Oct. 12: 1.33%):

1. Vanguard Dividend Appreciation ETF (VIG), $62 billion, 1.6%.

2. Vanguard High Dividend Yield ETF (VYM), $38.7 billion, 2.8%.

3. Schwab US Dividend Equity ETF (SCHD), $28.6 billion, 2.9%.

4. iShares Core Dividend Growth ETF (DGRO), $20.3 billion, 2.1%.

5. SPDR S&P Dividend ETF (SDY), $19.4 billion, 2.8%.

6. iShares Select Dividend ETF (DVY), $18.5 billion, 3.3%.

7. First Trust Value Line Dividend Index Fund (FVD), $12 billion, 1.8%.

Follow Nancy Gondo on Twitter at @IBD_NGondo

Trending Ideas

Featured Stocks On The Move

Daily Rundown

Top 3 Stocks in Leading Sectors
  • 3 Electric Power Stocks To Buy Now

    Featured Content Hawaiian Electric Industries, Inc. (HE) Hawaiian Electric Industries, Inc. is a holding company that provides electric utility services and financial services in Hawaii. Through its subsidiaries, it supplies... Read More

  • 3 Bank Stocks To Buy Now

    Featured Content Comerica Incorporated (CMA) Comerica Incorporated is a financial services company headquartered in Dallas, Texas, offering a range of banking products and services, including commercial and retail banking, wealth... Read More

  • 3 Machinery Stocks To Buy Now

    Featured Content Alta Equipment Group Inc. (ALTG) Alta Equipment Group Inc. is an integrated equipment dealership platform in the United States, operating through three segments: Material Handling, Construction Equipment, and... Read More

  • 3 Silver Stocks To Buy Now

    Featured Content Gatos Silver, Inc. (GATO) Gatos Silver, Inc. is a precious metals mining company primarily focused on silver and zinc production. Its flagship Cerro Los Gatos mine in Mexico... Read More

  • 3 Metal Production Stocks To Buy Now

    Featured Content Century Aluminum Company (CENX) Century Aluminum Company is a primary aluminum producer, with operations that include the production of high-purity, low-carbon aluminum used in automotive, aerospace, and industrial... Read More

  • 3 Medical Drug Stocks To Buy Now

    Featured Content Teva Pharmaceutical Industries Limited (TEVA) Teva Pharmaceutical Industries Limited is a global pharmaceutical company specializing in generic and specialty medicines. The company provides a wide range of treatments... Read More

  • 3 Paper Product Stocks To Buy Now

    Featured Content AptarGroup Inc. (ATR) AptarGroup Inc. is a global leader in providing innovative dispensing and packaging solutions, serving diverse industries like beauty, personal care, and pharmaceuticals. They focus on... Read More

  • 3 Restaurant Stocks To Buy Now

    Featured Content Brinker International, Inc. (EAT) Brinker International, Inc. operates well-known restaurant brands such as Chili’s Grill & Bar and Maggiano’s Little Italy. The company is a leader in the... Read More

  • 3 Investment Brokerage Stocks To Buy Now

    Featured Content Robinhood Markets, Inc. (HOOD) Robinhood Markets, Inc. is a financial services company known for its commission-free trading platform, which allows users to trade stocks, options, cryptocurrencies, and ETFs.... Read More

  • 3 Shipping Stocks To Buy Now

    Featured Content ZIM Integrated Shipping Services Ltd. (ZIM) ZIM Integrated Shipping Services Ltd. is a global container shipping company that provides cargo transportation services worldwide. The company operates a modern... Read More

  • 3 Mining Stocks To Buy Now

    Featured Content Perpetua Resources Corp. (PPTA) Perpetua Resources Corp. is a mining company focused on the exploration and redevelopment of the Stibnite Gold Project in Idaho, which is one of... Read More

  • 3 Airline Stocks To Buy Now

    Featured Content General Electric Company (GE) General Electric Company is a global industrial conglomerate with operations spanning sectors such as aviation, healthcare, power, and renewable energy. GE is known for... Read More