key points
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SCHD has a low expense ratio and offers a great combination of yield and dividend growth.
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SDY is geared towards investors who value sustainability.
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DGRO focuses on companies that have the potential to grow their payouts over time.
When looking for long-term yield, income investors have two basic options: dividend stocks and dividend exchange-traded funds. Dividend stocks tend to have a little more stability – especially when choosing stocks with a long history of dividend growth and a respectable yield. Investors who choose these stocks know exactly what kind of payout (and payout growth) they can expect.
But even with that advantage, I prefer dividend ETFs. Payouts fluctuate a bit because investors are buying a whole basket of stocks rather than a single name. And the names in that basket can change depending on the underlying index or, in the case of actively managed funds, the decisions of the fund manager.
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A dollar bill with a hole in the middle and the letters ETF.
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But I will accept increased uncertainty for the sake of diversification. Dividend ETFs offer protections that are less prevalent in single stocks – if a catastrophic event occurs that impacts a company in your portfolio, it could be an investment disaster. But investing in dividend ETFs means limiting investments to a single stock.
Of course, there are plenty of great dividend ETFs out there. The three highlighted here are geared toward long-term investors, but each has a unique approach. let’s take a look Schwab US Dividend Equity ETF (NYSEMKT: SCHD), State Street SPDR S&P Dividend ETF (NYSEMKT:SDY), and iShares Core Dividend Growth ETF (NYSEMKT:DGRO).
1. Schwab US Dividend Equity ETF
SCHD is a popular ETFWith a net worth of $98.65 billion. ETF tracks Dow Jones US Dividend 100 IndexIncluding 100 high-yield US dividend stocks with proven dividend track records. However, note that the index does not include real estate investment trusts (REITs), so if you are looking to invest in a dividend-focused company such as realty incomeYou will have to look elsewhere.
The five top holdings at this writing are UnitedHealth Group, merck, home depot, abbottlaboratoriesAnd Procter & GambleThe stake of any one company in the portfolio does not exceed 4.5%. SCHD is also diversified across stock market sectors, with consumer staples having the highest weighting at 19.4%.
SCHD has an expense ratio of 0.06%, or a $6 annual fee per $10,000 invested. Shares are up 19.4% over the last year, but after accounting for dividend payments, SCHD has a total return of 24.7%.
2. State Street SPDR S&P Dividend ETF
SDY is also a solid ETF For income investors, but its focus is more on companies with a long history of dividend growth. Although this may be attractive to investors seeking additional protection, the returns are not as good as SCHD.
tracks funds S&P High Yield Dividend Aristocrats® indexWhich includes the highest yielding members S&P Composite 1500 Index Which has increased its dividend for at least 20 consecutive years. Dividend Aristocrat® is a registered trademark of Standard & Poor’s Financial Services LLC.
Realty Income, known for its monthly dividends, tops the fund with a weighting of 2.1%, followed by Realty Income in second place. Verizon Communications, Kimberly-Clark, kenviewAnd automated data processing. Stocks representing the industrial sector make up 18.8% of the SDY, followed by consumer staples (16.5%), utilities (14.6%), and financials (13.3%).
With $21.85 billion in assets under management, SDY is more expensive than SCHD with an expense ratio of 0.35%. The fund holds 156 stocks and returned 11.7% last year, giving a total return of 16% after including dividends.
3. iShares Core Dividend Growth ETF
DGRO’s buy-and-hold dividend investment strategy focuses on companies that have enough room to grow their payouts over time, not companies with high yields today. it tracks Morningstar US Dividend Growth IndexWhich includes US companies that have paid dividends for at least five years and have a payout ratio of less than 75%.
DGRO With $42.28 billion in assets under management and 390 holdings, it is the most diversified of the three ETFs. is the top holding johnson and johnsonwith 3.2% weighting, followed by JPMorgan Chase, AbbVie, AppleAnd Microsoft. DGRO is also known for its sector mix, with financial stocks having the highest weighting at 20.8%, followed by healthcare (18%) and information technology (16%).
DGRO has an expense ratio of 0.08% and a one-year return of 18.8%. After including dividend payments, its total return is 22.3%.
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JPMorgan Chase is an advertising partner of Motley Fool Money. patrick sanders No positions in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, Apple, Home Depot, JPMorgan Chase, Merck, Microsoft, and Realty Income. The Motley Fool recommends Johnson & Johnson, Kenview, UnitedHealth Group, and Verizon Communications. The Motley Fool has one Disclosure Policy.