While most of the market’s attention is currently on tech stocks and artificial intelligence (AI), it’s important to note that dividend stocks have an excellent track record. Of course, they haven’t delivered the gains that semiconductor stocks have. But if you go back more than ten years, you will find many impressive records.
This is important because looking back 10 to 20 years means you count the bear market of 2022, the 2020 COVID-19 pandemic, the mini bear market of 2018, and the US debt reduction of 2011. Stocks and exchange-traded funds (ETFs) should be judged on long-term performance, not just recent performance. That helps ensure we see how these securities perform across multiple markets and economic cycles.
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What makes a strong long-term dividend ETF
If you’re looking for a dividend ETF that can be used as a core portfolio holding, you’ll want to look for a few things:
The lowest cost estimate
A strategy that considers more than one factor (eg, high yield and quality)
Meaningful sector diversification
A screen that helps ensure long-term profit sustainability
These qualifications are not requirements to meet the definition of a “good” fund. But a well-integrated strategy that considers multiple factors in its selection process often has a better chance of reducing volatility and achieving long-term success. A strategy that uses selection criteria such as cross-checking would do a better job of removing bad apples from consideration.
Four ETFs have turned $10,000 into $45,000 or more over the past 15 years.
Data via YCharts.
Company Vanguard High Dividend Yield ETF
I Company Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is a pure high yield strategy. It starts with the US capital stock universe and simply selects the top 50% of yield climates in that group, excluding real estate investment trusts and weighted by market cap.
Its top four sectors are finance (20%), tech (19%), industrials (13%), and healthcare (12%). Investors find strong sector diversification from growth, cyclical, and defensive sectors.
Vanguard Dividend Appreciation ETF share price
I Vanguard Dividend Appreciation ETF share price (NYSEMKT: VIG ) could be a pure dividend growth strategy. It also starts with a large area of US stocks and selects those with 10 or more consecutive years of annual dividend growth. A maximum yield of 25% is not included to avoid any potential yield traps. Holdings are market-cap-weighted.
Taking out the high yield drops the overall portfolio yield to 1.5%. That won’t attract many people to use it as income, but historically it has been focused on growth, which explains some of its strong performance. Tech currently accounts for 28% of the portfolio, which has been leading recent gains.
iShares Select Dividend ETF
I iShares Select Dividend ETF (NASDAQ: DVY) is the first combination strategy on the list. It looks at the stock’s five-year earnings growth rate and payout ratio to take into account both earnings history and quality factors. Because it measures the portfolio by paying dividends, it tends to be skewed toward higher yields.
There are two caveats with this bag. First, its expense ratio of 0.38% definitely qualifies as above average within the dividend ETF category. Second, almost half of the portfolio is dedicated to the financial and utilities sectors. Performance has historically been strong, but it is being achieved in two key ways.
Shares of State Street SPDR S&P Dividend ETF
I Shares of State Street SPDR S&P Dividend ETF (NYSEMKT: SDY) is a fund that targets farmers with high, long-term returns. It selects companies with 20-plus-year dividend-growth records and weights them by dividend yield. This gives the fund the stability of a financially stable growth dividend stock with strong income for high-yielding individuals.
This portfolio is incredibly diverse. Industrials, consumer staples, utilities, and financials all receive shares between 13% and 19%. This makes it the most suitable ETF on this list to deal with different market conditions.
If you need income now, the iShares Select Dividend ETF and the State Street SPDR S&P Dividend ETF make more sense. If you have a long-term view, the Vanguard Dividend Appreciation ETF’s dividend growth component and technology exposure offer great opportunities for long-term growth.
Does an ETF pay dividends?
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David Dierking You can find the exact price of the Vanguard Dividend Appreciation ETF. The Motley Fool has positions and recommends the Vanguard Dividend Appreciation ETF and the Vanguard High Dividend Yield ETF. The Motley Fool has disclosure policy.
4 Dividend ETFs That Turned $10,000 Into Over $45,000 In 15 Years was originally published by The Motley Fool.
