High Dividend ETF: What It Is and How It Works
High dividend ETFs are exchange-traded funds that seek to provide a high level of dividend income for investors. They may passively track the performance, less fees, of a benchmark index, such as the S&P 500 High Dividend Index. By owning dividend-paying stocks, various dividend ETFs collect the dividends and distribute them to the ETF shareholders.
Like dividend stocks and with other dividend ETFs, a high dividend ETF normally makes dividend payments to its own shareholders on a periodic basis, such as quarterly. A dividend ETF will set an ex-dividend date, a record date, and a payment date for its dividends payments. Investors may choose to receive the dividends as cash or reinvest them to buy more shares of the ETF.
Tip: Higher yielding dividend ETFs are not necessarily better investment choices than non-high-yielding ETFs. In fact, higher yields can be representative of higher risk. For this reason, investors are wise to dig deeper and assess dividend quality, not just the level of the dividend yield at some given point in time. For help in evaluating dividends, investors can use Seeking Alpha's Dividend Grades, which help to show which stocks and ETFs have the strongest dividends, and which are likely to grow that payout in the future.
Evaluating a High Dividend ETF
As with any other investment type, the process of choosing the best high dividend ETFs to suit an investor's needs may begin by narrowing down the choices with an ETF screener. Dividend funds are typically found in value sub class of stocks or sectors, such as financials, utilities or real estate. Investors can then sort by yield.
Examples of selection criteria investors can use for evaluating high dividend ETFs are:
- Performance: 1-year return is the primary selection criteria for evaluating performance on our list of high dividend ETFs. Thus, by definition, the five ETFs in our selection are those with the five highest 1-year returns, through February 28, 2022. However, investors may review longer periods, such as 3-, 5-, and 10-year returns.
- Expenses: When ETFs track the same index or commodity, the one with the lowest expense ratio will generally outperform those with higher expenses. Since the ETFs on our list do not all track the same index, the expense ratio is not a primary selection driver, albeit and important one for investors to note when evaluating index-based ETFs.
- Structure: ETFs are typically structured in one of three different ways: as open-end funds, unit investment trusts, or grantor trusts. Most ETFs are structured as open end funds, which are funds that can issue and redeem shares at any time.
- Objective: All of the ETFs on our list have an explicit objective to use a US high dividend stock index as the benchmark, such as the S&P 500 High Dividend Index.
- Portfolio holdings: The ETFs on our list hold high-yielding dividend stocks. Some primarily hold large-cap U.S. stocks, while others invest in a range of small-, mid- and large-caps with international exposure.
- Quant ratings: Seeking Alpha's Quant Ratings and Factor Grades can be used in the evaluation of stocks and ETFs. In this article, we provide Factor Grades, which rate ETFs by five "factors" - Momentum, Expenses, Dividends, Risk, and Asset Flows. To do this, we compare the relevant metrics for the factor in question for the ETF to the same metrics for the other ETFs in its asset class. The factor is then assigned a grade, from A+ to F, instantly characterizing the strength or weakness of the metric compared to the asset class.
Top 5 Highest-Performing Dividend ETFs
- VictoryShares US Large Cap High Div Volatility Wtd ETF
- VictoryShares US EQ Income Enhanced Volatility Wtd ETF
- WisdomTree U.S. High Dividend ETF
- Legg Mason Low Volatility High Dividend ETF
- Fidelity High Dividend ETF
1. VictoryShares US Large Cap High Div Volatility Wtd ETF
- As of date: February 28, 2022
- Performance over One-Year: 25.60%
- Expense Ratio: 0.35%, or $35 annually for every $10,000 invested
- 30-Day SEC Yield: 2.92%
- Three-Month Average Daily Volume: 1.3 k
VictoryShares US Large Cap High Div Volatility Wtd ETF Performance
1-Yr Return 3-Yr Return 5-Yr Return 10-Yr Return VictoryShares US Large Cap High Div Volatility Wtd ETF 25.60 13.60 11.31 NA Nasdaq Victory US Lg Cap High Div 100 Vol Wtd Index 26.14 14.02 11.72 NA S&P 500 16.39 18.24 15.17 14.59
VictoryShares US Large Cap High Div Volatility Wtd ETF Structure, Objective, and Holdings
VictoryShares US Large Cap High Div Volatility Wtd ETF (CDL) is an exchange-traded fund that seeks to track the investment results of the Nasdaq Victory US Large Cap High Dividend 100 Volatility Weighted Index.
CDL is unique in that it seeks a balanced approach to investing in income-generating equities rather a cap-weighted approach like many index funds follow.
- Inception Date: 07/07/2015
- Sponsor: Victory Capital Management, Inc.
- Ticker: CDL
- Primary exchange: Nasdaq
CDL ETF Top 10 Holdings
- Lockheed Martin Corp. (LMT): 1.63%
- Costco Wholesale Corp. (COST): 1.60%
- Consolidated Edison Inc. (ED): 1.58%
- Coca-Cola Co. (KO): 1.53%
- Archer-Daniels-Midland Co (ADM): 1.53%
- Verizon Communications (VZ): 1.51%
- Pepsico Inc. (PEP): 1.51%
- Chevron Corp. (CVX): 1.50%
- Johnson & Johnson (JNJ): 1.48%
- Abbvie Inc. (ABBV): 1.44%
Seeking Alpha's Quant Rating Grades: CDL ETF
Momentum Expenses Dividends Risk Asset Flows A+ C B B+ A-
2. VictoryShares US EQ Income Enhanced Volatility Wtd ETF
- As of date: February 28, 2022
- Performance over One-Year: 25.59%
- Expense Ratio: 0.36%, or $36 annually for every $10,000 invested
- 30-Day SEC Yield: 2.93%
- Three-Month Average Daily Volume: 18.9 k
VictoryShares US EQ Income Enhanced Volatility Wtd ETF Performance
1-Yr Return 3-Yr Return 5-Yr Return 10-Yr Return VictoryShares US EQ Income Enhanced Volatility Wtd ETF 25.59 19.53 13.44 NA Nasdaq Victory US Lg Cap High Div 100 Long/Cash Vol Wtd Index 26.14 20.01 13.89 NA S&P 500 16.39 18.24 15.17 14.59
VictoryShares US EQ Income Enhanced Volatility Wtd ETF Structure, Objective, and Holdings
VictoryShares US EQ Income Enhanced Volatility Wtd ETF (CDC) is an open-end exchange-traded fund that seeks to track the performance of the Nasdaq Victory US Large Cap High Dividend 100 Long/Cash Volatility Weighted Index.
The benchmark index reduces exposure to equity markets during periods of significant market declines and reinvests when market prices have further declined or rebounded.
- Inception Date: 07/01/2014
- Sponsor: Victory Capital Management, Inc.
- Ticker: CDC
- Primary exchange: Nasdaq
CDC ETF Top 10 Holdings
- Lockheed Martin Corp. (LMT): 1.63%
- Costco Wholesale Corp. (COST): 1.60%
- Consolidated Edison Inc. (ED): 1.58%
- Coca-Cola Co. (KO): 1.53%
- Archer-Daniels-Midland Co (ADM): 1.53%
- Verizon Communications (VZ): 1.51%
- Pepsico Inc. (PEP): 1.51%
- Chevron Corp. (CVX): 1.50%
- Johnson & Johnson (JNJ): 1.48%
- Abbvie Inc. (ABBV): 1.44%
Seeking Alpha's Quant Rating Grades: CDC ETF
Momentum Expenses Dividends Risk Asset Flows A+ C B+ B A
3. WisdomTree U.S. High Dividend ETF
- As of date: February 28, 2022
- Performance over One-Year: 24.42%
- Expense Ratio: 0.38%, or $38 annually for every $10,000 invested
- 30-Day SEC Yield: 3.40%
- Three-Month Average Daily Volume: 63.3 k
WisdomTree U.S. High Dividend ETF Performance
1-Yr Return 3-Yr Return 5-Yr Return 10-Yr Return WisdomTree U.S. High Dividend ETF Performance 24.42 9.92 8.07 10.68 WisdomTree U.S. High Dividend Index 25.01 10.34 8.47 11.09 S&P 500 16.39 18.24 15.17 14.59
WisdomTree U.S. High Dividend ETF Structure, Objective, and Holdings
WisdomTree U.S. High Dividend ETF (DHS) is an exchange-traded fund that seeks to track the performance of the WisdomTree U.S. High Dividend Index, which is a fundamentally weighted index that measures performance of companies with high dividend yields.
- Inception Date: 06/16/2006
- Sponsor: WisdomTree Asset Management, Inc
- Ticker: DHS
- Primary exchange: NYSE Arca
DHS ETF Top 10 Holdings
- Exxon Mobil Corp (XOM): 6.95%
- Chevron Corp (CVX): 5.83%
- Pfizer (PFE): 4.79%
- Abbvie (ABBV): 4.68%
- Philip Morris International Inc (PM): 4.51%
- Coca-Cola Company (KO): 4.59%
- Altria Group, Inc. (MO): 4.39%
- Verizon Communications Inc (VZ): 4.28%
- Merck & Co, Inc. (MRK): 2.83%
- Cisco Systems, Inc. (CSCO):2.29%
Seeking Alpha's Quant Rating Grades: DHS ETF
Momentum Expenses Dividends Risk Asset Flows A+ C- A- B B+
4. Legg Mason Low Volatility High Dividend ETF
- As of date: February 28, 2022
- Performance over One-Year: 21.95
- Expense Ratio: 0.27%, or $27 annually for every $10,000 invested
- 30-Day SEC Yield: 3.16%
- Three-Month Average Daily Volume: 24.7 k
Legg Mason Low Volatility High Dividend ETF Performance
1-Yr Return 3-Yr Return 5-Yr Return 10-Yr Return Legg Mason Low Volatility High Dividend ETF 21.95 10.54 8.73 NA QS Low Volatility High Dividend Index 22.34 10.76 18.98 NA S&P 500 16.39 18.24 14.17 14.59
Legg Mason Low Volatility High Dividend ETF Structure, Objective, and Holdings
Legg Mason Low Volatility High Dividend ETF is an open exchange-traded fund that seeks to track the performance of the QS Low Volatility High Dividend Index, which is composed of stocks of U.S. companies with relatively high yield and low price and earnings volatility.
- Inception Date: 12/28/2015
- Sponsor: Legg Mason Partners Fund Advisor, LLC
- Ticker: LVHD
- Primary exchange: Nasdaq
LVHD ETF Top 10 Holdings
- Lockheed Martin Corp (LMT): 3.06%
- General Dynamics Corp (GD): 2.62%
- Johnson & Johnson (JNJ): 2.61%
- Coca-Cola Company (KO): 2.61%
- Procter & Gamble (PG): 2.58%
- CVS Health Corp (CVS): 2.58%
- Cisco Systems, Inc. (CSCO): 2.56%
- Verizon Communications Inc (VZ): 2.55%
- Colgate-Palmolive Company (CL): 2.44%
- Emerson Electric Co (EMR): 2.43%
Seeking Alpha's Quant Rating Grades: LVHD ETF
Momentum Expenses Dividends Risk Asset Flows A- B- C B D+
5. Fidelity High Dividend ETF
- As of date: February 28, 2022
- Performance over One-Year: 21.90%
- Expense Ratio: 0.29%, or $29 annually for every $10,000 invested
- 30-Day SEC Yield: 2.97%
- Three-Month Average Daily Volume: 178.9 k
Fidelity High Dividend ETF Performance
1-Yr Return 3-Yr Return 5-Yr Return 10-Yr Return Fidelity High Dividend ETF 21.90 14.44 12.24 NA Fidelity High Dividend NR USD 22.28 14.76 12.57 NA S&P 500 16.39 18.24 15.17 14.59
Fidelity High Dividend ETF Structure, Objective, and Holdings
Fidelity High Dividend ETF (FDVV) is an open-end exchange-traded fund that seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity High Dividend Index, which covers stocks of large and mid-capitalization, high-dividend-paying companies that are expected to continue to pay and grow their dividends.
- Inception Date: 09/12/2016
- Issuer: Fidelity Management & Research Company
- Ticker: FDVV
- Primary exchange: NYSE Arca
FDVV ETF Top 10 Holdings
- Apple Inc (AAPL): 5.42%
- Microsoft Corp (MSFT): 4.85%
- Chevron Corp (CVX): 2.77%
- Exxon Mobil Corp (XOM): 2.72%
- JPMorgan Chase (JPM): 2.30%
- ONEOK Inc (OKE): 2.13%
- Williams Companies Inc (WMB): 2.11%
- Kinder Morgan Inc (KMI): 2.05%
- Bank of America Corp (BAC): 2.05%
- NVIDIA Corp (NVDA): 1.88%
Seeking Alpha's Quant Rating Grades: FDVV ETF
Momentum Expenses Dividends Risk Asset Flows A+ C+ A A- B+
Bottom Line
High dividend ETFs can be a convenient means of gaining exposure to stocks that offer above-average dividend yields via a single fund. While high dividend ETFs can provide more stable returns than growth stocks, there remains a risk of losing principal from these ETFs. Investors should carefully select high dividend ETFs and assess dividend quality, not just the level of the dividend yield.
This article was written by
Kent Thune
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Kent Thune, CFP®, is a fiduciary investment advisor specializing in tactical asset allocation and portfolio management with a focus on ETFs and sector investing. Mr. Thune has 25 years of wealth management experience and has navigated clients through four bear markets and some of the most challenging economic environments in history. As a writer, Kent's articles have been seen on multiple investing and finance websites, including Seeking Alpha, Kiplinger, MarketWatch, The Motley Fool, Yahoo Finance, and The Balance. Mr. Thune'sregistered investment advisory firmis headquartered in Hilton Head Island, SC where he serves clients all around the United States. When not writing or advising clients, Kent spends time with his wife and two sons, plays guitar, or works on his philosophy book that he plans to publish in 2024.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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