Income-oriented investors disgusted by the pitiful yields available in US fixed income securities during the past five years have turned increasingly to dividend ETFs. However, in the ETF world, dividend-oriented ETFs and ETFs constructed to pay owners the highest possible dividend yields aren’t necessarily the same thing. Today, we’ll compare 5 dividend-oriented ETFs with very different construction rules and performance records. Then we will provide return/yield comparisons with a few ETFs paying very high dividend yields with very different holdings and methodologies.
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We selected these popular dividend ETFs for the analysis:
NOBL, ProShares S&P 500® Dividend Aristocrats
SCHD, Schwab US Dividend Equity ETF
SDOG, ALPS Sector Dividend Dogs
SPDV, Advisors Asset Management (AAM) High Dividend Value ETF
VYM, Vanguard High Dividend Yield ETF
All five ETFs have distinct strategies –
NOBL mimics the S&P 500 Dividend Aristocrats Index. Its selection set is limited to the stocks of companies that have increased their dividends for at least 25 consecutive years. Holdings are equal-weighted, with sector weights capped at 30%.
SCHD includes firms with a 10-year history of paying dividends. Within that universe, it uses fundamental screens (cash-flow to debt ratio, ROE, dividend yield, and dividend growth rate) to focus on quality companies with sustainable dividends. SCHD is market-cap weighted.
SDOG applies the “Dogs of the Dow” theory to the S&P 500 Index on a sector-by-sector basis. The ETF equally weights the five companies with the highest dividend yields in each industry sector grouping (GICS).
SPDV selects companies from the S&P500 index with high, positive dividend and free-cash-flow yields. The latter calculation adds depreciation and amortization back into Earnings Per Share then divides that quantity by Price Per Share. This dual measure combined using a statistical transformation, provides the ranking for selection as one of the top five securities in each industry sector grouping (GICS). This newer fund can be thought of as a twist on SDOG that takes cash-flow earnings as well as dividends into account in its selection scheme/
VYM is the broadest (400+ names) and in many ways the simplest of these five dividend focused ETFs. Firms are ranked by forecast dividends over the next 12 months, those in the top half are selected before market-cap weighting these stocks.
IVV, the iShares S&P 500 ETF, is used for comparative purposes in the chart below. The bold numbers denote the Dividend ETF with the most favorable score in the category.
All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated on www.ValuEngine.com
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|VE Forecast 3-mo. Return||0.52%||0.27%||-0.48%||-0.40%||0.07%||0.94%|
|VE Forecast 6-mo. Return||1.76%||1.25%||-0.37%||-0.10%||0.80%||2.68%|
|VE Forecast 1-yr. Return||-4.34%||-4.14%||-5.82%||-6.03%||-4.43%||-4.26%|
|Historical 3-Mo. Price Return||0.84%||0.25%||-1.35%||-0.77%||2.51%||2.76%|
|Historical 6-Mo. Price Return||2.77%||1.03%||-4.55%||-4.01%||2.83%||9.51%|
|Historical 1-Yr. Price Return||17.92%||21.13%||16.31%||20.72%||22.96%||26.55%|
|Historical 3-Yr Annualized Price Return||15.95%||20.49%||11.86%||10.06%||13.81%||23.35%|
|Historical 5-Yr Annualized Price Return||11.86%||12.42%||5.23%||3.47%||8.35%||15.38%|
|# of Stocks||66||100||51||56||412||500|
|Heaviest Industry||Consumer Staples||Finance||Utilities||Finance||Finance||Technology|
|% of Stocks Deemed Undervalued by VE||45%||68%||64%||74%||55%||46%|
|Div. Yield||1.8%||2.9 %||3.5%||3.0%||2.7%||1.3%|
|Index Provider||S&P Dow Jones||S&P Dow Jones||Alerian / S-Net||S&P Dow Jones||FTSE Intl.||S&P Dow Jones|
Current ValuEngine reports on these ETF’s can be viewed HERE
- There are huge cost differentials among the five ETFs with SDOG the highest at 0.40% and SCHD and VYM tied for the lowest at 0.03%, just 3 basis points higher than IVV.
- SDOG and SPDV, the two funds with the highest dividend yields, get the lowest possible rating, 1, from the ValuEngine model for the next six-to-twelve months. This indicates that the better dividend yields will not make up for the expected declines in price during the latter part of the 12-month period
- VYM, SCHD and NOBL, all rated 3 (HOLD, expected performance in line with market), are also the most popular Dividend ETFs, ranking 1,2 and 3 respectively in assets under management.
- NOBL, requiring 25 consecutive years of raising dividends annually, narrows the S&P 500 to just 66 holdings. This type of consistency is as much a measure of sustainable earnings quality as it is dividend yield. This explains the lowest dividend yield of 1.8%. This is why it also has the highest P/E ratio of all the Dividend ETFs. For dividend-focused investors, the investment case for NOBL is less compelling than for the other four ETFs.
- SCHD has superior forecasted returns to VYM as well as the higher dividend yield and the lower Price/Earnings Ratio and much higher 3- and 5-year returns. VYM’s yield is only 0.2% lower, has superior recent returns and lower P/B ratios and volatility. Of the five dividend ETFs, the analysis makes it clear why these two have the highest assets under management. For yield- and value-conscious investors, both are worthy candidates for diverting some core equity allocation to them and out of IVV.
My personal recommendation at this time is SCHD to dividend-focused equity investors also looking for competitive equity returns. In most of the metrics that matter most, SCHD rates a slight but tangible edge.
Senior Quantitative Analyst