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Highlights
- The dividend-paying securities are popular with investors.
- Exchange-traded funds offer diversity because of their exposure to various companies.
- Dividend ETFs focus on companies that have a long dividend-payment history.
The dividend-paying assets are popular among investors looking for retirement savings. While direct investment in individual stocks might prove costly and risky, dividend ETFs offer stability from market volatility and reduced risk because of their exposure to different companies.
These funds give equal exposure to equity and bonds, thus, reducing the risks considerably.
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Currently, the average AUM or asset under management of dividend ETFs in the US is approximately US$302.53 billion. The US has over 150 ETFs.
Here we discuss two dividend-ETFs based on their asset under management.
Vanguard Dividend Appreciation ETF (VIG)
The ETF is focused on dividend growth and tracks US-listed companies whose dividend payments have been growing of the last 10 years, excluding the top 25% high-yielding firms. The companies are selected on a market-cap-weighted basis, capping every security at 4%.
Vanguard, an open-ended fund launched in 2006, tracks the S&P US Dividend Growers Index.
Expense ratio – 0.06%
Asset Under Management (AUM) - US$68.57 billion
Average Daily Dollar Volume - US$277.97 million
Average Daily Share Volume - 1,669,296
Total holdings – 267
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Its top five holdings are Microsoft Corporation, Home Depot Inc., JP Morgan Chase & Co., United health Group Incorporated, and Johnson & Johnson, with more than 3% holdings.
The technology sector holds the maximum weightage at nearly 20%, followed by Industrials and Consumer Cyclicals.
The Vanguard ETF’s dividend yield is 1.54%. It has the largest asset under management in the dividend ETF category, with a high proportion to large-cap stocks, as per etf.com.
The ETF gave a 21.80% return YTD and closed at US$172.09 on Dec 29, 2021.
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Also Read: Best US ETFs that returned over 55% in 2021
Schwab US Dividend Equity ETF (SCHD)
It is a market-cap-weighted fund focused on investing in US companies with a dividend-payment history for at least 10 years. Further, the ETF has other criteria, such as RoE, dividend yield, dividend growth rate, cash flow to debt ratio, etc., for stock selection.
It does not include REITs in the portfolio and focuses on large-cap companies for stability. The individual securities are capped at 4%, while sector-wise, it is 25%.
This open-ended fund was launched by Charles Schwab in 2011.
Expense ratio – 0.06%
Asset Under Management (AUM) - US$30.62 billion
Average Daily Dollar Volume - US$143.11 million
Average Daily Share Volume - 1,829,306
Total holdings – 100
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Its top five holdings include Pfizer Inc., Broadcom Inc., Cisco Systems Inc., Coca-Cola Company, and Amgen Inc., with more than 4% exposure.
Its top 10 holdings constitute around 41% of the total portfolio. It gives over 22% exposure to the financial sector, followed by technology and industrials at 18% and 14%, respectively.
The ETF gave a 26.05% return YTD and closed at US$80.86 on Dec 29, 2021.
Its dividend yield is 2.78%.
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Bottomline
The dividend exchange-traded funds invest in dividend-paying stocks.
These ETFs offer better stability due to their exposure to different companies. However, investors should carefully evaluate the ETFs before investing.
