Top Dividend ETFs for 2023
Table of Contents
- Introduction
- Methodology for Choosing the Top Dividend ETFs
- Importance of Total Performance and Dividends in ETFs
- Tax Implications for Dividend ETFs
- Beware of Dividend Traps: A Real-Life Example
- Franklin FTSE Taiwan ETF
- Cambria Shareholder Yield ETF
- Pacer US Cash Cows 100 ETF
- Pacer Industrial Real Estate ETF
- SPDR S&P 500 Fossil Fuel Reserves Free ETF
- iShares U.S. Consumer Staples ETF
- Schwab US Dividend Equity ETF
- WisdomTree US Quality Dividend Growth Fund
- First Trust Rising Dividend Achievers ETF
- First Trust NASDAQ Technology Dividend Index Fund
- Bonus ETF: JP Morgan's Equity Premium Income and NASDAQ Equity Premium Income
Introduction
Investing in dividend stocks can be a great way to generate a steady stream of income. However, not everyone wants to take the risk of investing in individual stocks. That's where dividend exchange-traded funds (ETFs) come in. In this article, we will explore the top 10 dividend ETFs Based on total performance and dividend yields. We will also discuss the importance of total performance, tax implications for dividend ETFs, and the concept of dividend traps. So, let's dive in and discover the best dividend ETFs available in the market today.
Methodology for Choosing the Top Dividend ETFs
Before we Delve into the top dividend ETFs, let's take a look at the methodology used to select these funds. The selection process involved four criteria: dividend yield, year-to-date performance, three-year performance, and five-year performance. All ETFs offering a dividend yield of 2% or greater were considered and ranked based on their performance in each of these categories. The results were then combined to determine the overall score for each ETF. This method ensures that the selected ETFs have a strong history of providing high dividends and consistent performance over time.
Importance of Total Performance and Dividends in ETFs
When evaluating the performance of an ETF, it is crucial to consider both total performance and dividends. Total performance takes into account not only the capital gains but also the reinvested dividends and expenses. It provides a more accurate picture of the return on investment. It is important to understand that a high dividend yield does not necessarily indicate a high total return. The total return already incorporates the dividends and expenses, so it is essential to focus on the overall performance rather than just the dividend yield when selecting an ETF.
Tax Implications for Dividend ETFs
Investors in dividend ETFs need to be aware of the tax implications associated with receiving dividends. These ETFs may pay dividends monthly, quarterly, or annually. The taxation of dividends depends on several factors, including the holding period and whether the dividends are qualified or non-qualified. If the ETF meets the criteria for qualified dividends and has been held for at least 60 days leading up to the ex-dividend date, investors will pay capital gains tax based on their modified adjusted gross income. It is crucial to review the prospectus of the ETF to determine whether the dividends are qualified or non-qualified and to understand the tax implications.
Beware of Dividend Traps: A Real-Life Example
Dividend traps are stocks or ETFs that offer high dividend yields to attract investors but fail to generate positive returns. These traps lure investors with the expectation of passive income but ultimately result in losses. It is essential to analyze the total performance of an ETF to avoid falling into a dividend trap. For example, the GlobalX SuperDividend ETF (SDIV) boasts an attractive monthly dividend of 11.8%. However, its total performance over the past five years has been a negative 9.9%. This ETF has performed poorly and should be approached with caution. Investors must not be swayed by high dividend yields alone; a comprehensive assessment of the overall performance is crucial in avoiding dividend traps.
Franklin FTSE Taiwan ETF
The Franklin FTSE Taiwan ETF focuses on large and mid-sized companies in Taiwan, particularly those heavily vested in technology. With Taiwan Semiconductor accounting for 20% of the holdings, this ETF offers exposure to a major player in the semiconductor market. The year-to-date performance is 15.3%, and the dividend yield stands at 2.78%. However, investors should be mindful of the added risk associated with China's potential attempt to absorb Taiwan by force.
Cambria Shareholder Yield ETF
The Cambria Shareholder Yield ETF focuses on equities with cash distributions from 100 US companies that rank well in terms of dividends and stock buybacks. This ETF offers sector diversity, with its holdings primarily in finance, energy minerals, retail, and process industries. The three-year performance is an impressive 26.15%, and the dividend yield stands at 3.02%. However, the year-to-date performance of this ETF is negative, primarily because it lacks exposure to the tech sector.
Pacer US Cash Cows 100 ETF
The Pacer US Cash Cows 100 ETF invests in the top 100 companies with the best free cash flow yield, an indicator of company health and willingness to provide dividends and stock buybacks. This ETF focuses on energy minerals and health technology sectors. It has performed well, with a three-year performance of over 24% and a five-year performance of over 11%. The dividend yield is 2.12%, paid out quarterly. This ETF provides exposure to fossil fuel companies, which are poised to thrive as the cost of resources continues to increase.
Pacer Industrial Real Estate ETF
The Pacer Industrial Real Estate ETF stands out as the only real estate ETF on our list. This fund invests in industrial real estate investment trusts (REITs) that are crucial to e-commerce distribution and logistics networks. Given the growth of e-commerce and logistics sectors, this ETF offers attractive investment potential. It has a year-to-date performance of over 7% and impressive three-year and five-year performances of over 11% and 10%, respectively. The expense ratio is 0.55%, and the dividend yield is 2.53%, paid out quarterly.
SPDR S&P 500 Fossil Fuel Reserves Free ETF
The SPDR S&P 500 Fossil Fuel Reserves Free ETF focuses on companies that have no reliance on fossil fuel reserves. It offers exposure to top tech companies such as Apple, Microsoft, Amazon, and Nvidia. This ETF has shown strong performance, with year-to-date growth of 10.5% and three-year and five-year performances of over 12% and 10%, respectively. The low expense ratio of 0.2% and dividend yield of 2.66%, paid quarterly, make this ETF an attractive choice.
iShares U.S. Consumer Staples ETF
The iShares U.S. Consumer Staples ETF focuses on domestic consumer goods manufacturers, excluding consumer services. This ETF includes some of the most well-known brand names and is highly regarded for its track Record of outperforming the S&P 500. Despite a year-to-date performance of -3%, it boasts a three-year performance of over 20% and a five-year performance of over 13%. The stability offered by the consumer staples sector makes this ETF a reliable choice for investors.
Schwab US Dividend Equity ETF
The Schwab US Dividend Equity ETF is one of the most popular dividend ETFs available. It focuses on established companies with a strong history of increasing dividends over time. Despite a year-to-date performance of -7.5%, this ETF has delivered respectable three-year and five-year performances, outperforming the S&P 500. Its low expense ratio of 0.06% and high dividend yield of 3.74%, paid quarterly, make it an attractive option for income-seeking investors.
WisdomTree US Quality Dividend Growth Fund
The WisdomTree US Quality Dividend Growth Fund invests in large-cap companies with a proven track record of dividend growth. With nearly 300 holdings, this ETF offers stability and reduces the need for frequent rebalancing. It has delivered consistent returns, with a year-to-date performance of over 4%, a three-year performance of over 15%, and a five-year performance of over 10%. The expense ratio is reasonable at 0.28%, and the dividend yield is 2.04%, paid monthly.
First Trust Rising Dividend Achievers ETF
The First Trust Rising Dividend Achievers ETF focuses on companies that have a history of raising dividends and aim to Continue doing so. It provides exposure to small, medium, and large-cap assets across various sectors. This ETF has achieved a year-to-date performance of 1.67% and impressive three-year and five-year performances of over 17% and 9%, respectively. While the expense ratio is at the higher end, 0.5%, the quarterly dividend yield is 2.32%.
First Trust NASDAQ Technology Dividend Index Fund
The First Trust NASDAQ Technology Dividend Index Fund focuses on technology companies that offer dividends. Despite its tech-heavy portfolio, it has delivered solid performance, with a year-to-date growth of 15.9% and three-year and five-year performances of over 12% and 10%, respectively. This ETF has a reasonable expense ratio of 0.5% and a dividend yield of 2.2%, paid quarterly.
Bonus ETF: JP Morgan's Equity Premium Income and NASDAQ Equity Premium Income
Although these two ETFs did not make it to the top 10 due to a lack of three-year and five-year performance, they deserve a mention. JP Morgan's Equity Premium Income ETF (JEPI) and NASDAQ Equity Premium Income ETF (JEPQ) focus on companies with a strong dividend history. Despite limited performance history, both ETFs offer attractive monthly dividends, with JEPI at over 11% and JEPQ at over 12%. Investors willing to take on additional risk may consider these ETFs for their income-generating potential.
In conclusion, dividend ETFs can be an excellent investment option for those seeking income and capital appreciation. The top 10 dividend ETFs listed here offer a mix of sector diversification, stability, and exposure to high-growth industries. However, it is essential to conduct thorough research and consider individual investment goals and risk tolerance before making any investment decisions.
