Thursday, November 13, 2008

Dividend ETF’s for busy investors

In my blog, Dividend Growth Investor, I am always trying to find out the best dividend stocks which would provide me with a dividend income stream that would increase above the levels of inflation for many decades to come. If I didn’t have any time to go through all the hassle of picking individual dividend stocks however, I would have turned to dividend ETF’s.

I have stated several reasons why I don’t like investing in dividend etf’s in a previous article. If you want to own a portfolio of stocks which is ready to be purchased in a single ETF trade, and paying an annual fee is not an issue for you, then this article could be beneficial for you.

Most of my readers are aware that I am fascinated with the Dividend Aristocrats index, which is an equally weighted index which includes a select group of dividend stocks which have increased their dividends for over twenty five consecutive years. The bad news is that there isn’t an ETF that covers this index at the time. There is however an dividend ETF which covers the High-Yield Dividend Aristocrats index, which resembles the dividend aristocrats index closely in terms of performance and components.

The S&P High Yield Dividend Aristocrats ETF has an annual fee of 0.35%. The ETF currently yields 4.40%.

There are several other notable dividend ETF’s out there as well, which focus on rising dividend income:


PowerShares HighYield Dividend Achievers ETF (PEY) tracks the Mergent’s Highest Yielding Dividend Achievers Index. The total annual fee is 0.60%, while the index is currently yielding 5.69%.

The PowerShares Dividend Achievers ETF (PFM) tracks The Broad Dividend Achievers Index, which consists of companies that have increased their annual dividend for ten or more consecutive fiscal years. The annual fee is 0.60%, and the current yield is 2.72%.

The PowerShares International Dividend Achievers ETF (PID) tries to replicate The International Dividend Achievers Index which includes companies that have increased their annual dividend for five or more consecutive fiscal years. The annual management fee is 0.58% and the current yield is 4.91%.

iShares Dow Jones Select Dividend Index ETF(DVY) is the first dividend focused ETF, launched in 2003. This fund has a 0.40% annual expense ratio and currently yields 4.65%.

BlackRock Dividend Achievers Trust (BDV) has the highest management fee amongst all dividend ETF’s at 0.83% annually. The dividend yield is 9.90%. This fund is a prime example of the fact that higher management fees do not lead to superior investment performance after all. I should also add that this fund is more actively managed as the advisor tries to select a varying number of dividend achievers which spot the highest yields.

PowerShares High Growth Rate Dividend Achiever (PHJ) consists of the 100 United States stocks with the fastest growing dividends for the past 10 years. This ETF yields 2.70% and has an annual management fee of

Full Disclosure: Long S&P 500

Relevant Articles:

- MarketClub BONUS, 2 FREE MONTHS!
- International Dividend Achievers for diversification.
- Why do I like Dividend Aristocrats?
- Long term returns of S&P high-yield aristocrats
- Why do I like Dividend Achievers

5 comments:

  1. A good brief description of those ETF's DGI. Something you should definitely promote on the web for new investors interested in gaining exposure to dividends but avoiding the individual stock purchases until they feel confident enough to do so.

    ReplyDelete
  2. One of your comments may be a key observation that could help new investors like me understand more. Discussing the BLack Rock Dividend Achievers Trust, which currently has by far the highest yield of all the stocks examined, you wrote, "This fund is a prime example of the fact that higher management fees do not lead to superior investment performance after all." To the new investor this looks like a contradiction, since you're implying that Black Rock has inferior investment performance despite having the highest yield. Could you please explain how and why that is so? Does performance have more to do with the long-term likelihood of a stock increasing in value, and less to do with short-term yield?

    ReplyDelete
  3. Vanguard also has two Dividend ETF's

    Dividend Apprec ETF VIG

    High Dividend Yield ETF VYM


    Highly correlated to all the other ETF's you mentioned and lower fees.

    ReplyDelete
  4. Rod,

    Most dividend etf's invest in similar stocks. Paying a larger fee detracts from performance relative to other dividend etfs.
    Furthermore despite investing in the dividend achievers, which consists of stocks that pay out increasing dividends, BDV hasn't changed its payout at all for several years. This implies that they are returning capital gains in addition to dividends.

    Mike,

    Thanks for the input. The VIG sounds like an interesting play. Vanguard does appear to have the lowest cost ETF's out there. The only issue is that they haven't been around for as long as the rest.

    I would add them in future reviews of dividend etf's however.

    ReplyDelete
  5. Dividend ETFs are the way to go if you want to get paid for waiting for the recovery. In fact, high-yielding stocks did fairly well during the Great Depression.

    Here is the complete list of high-yielding domestic ETFs.

    ReplyDelete

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