In this article, we discuss the 10 dividend ETFs to buy now.
Value investors have long professed that the true value of a company lies in the ability it has to return profits to shareholders. These investors, who like investments in dividend stocks, also believe that regular cash inflows are important for the smooth running of any business. In the incredible hullabaloo around growth stocks over the past few years, these investors have been pushed to the periphery. However, it is interesting that even though value investors are not in the spotlight, the net inflows into dividend ETFs have increased.
Perhaps some of this has to do with inflation fears, but there is something more to the story as well. According to data compiled by Morningstar, a financial services company, and reported by news publication The Wall Street Journal, the net inflows into dividend ETFs at the end July this year were $25 billion, a huge jump from $1.8 billion worth of net inflows into the sector at the end of July 2020. This indicates that at the height of the virus crisis in 2020, dividend ETFs were not a particularly powerful investing vehicle.
Certainly, one reason why dividend ETFs struggled during 2020 was that many companies were forced to halt dividend payments as they battled the closure of business. As the economy reopened at the turn of the year, these firms resumed dividend payouts. Thus, so did investments in dividend ETFs. Data from Dow Jones Indices indicates that between June and September this year, there were 568 common dividend increases reported by companies on the S&P 500, up 130% year-on-year.
Investors who are eager to jump on the dividend gravy train as the economy jumps full steam ahead should follow the smart money. Some of the top holdings of the dividend ETFs presently include Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), and The Home Depot, Inc. (NYSE:HD), among others discussed in detail below. As inflation fears increase, even hedge funds have started to balance the risk in their portfolios that have grown growth-heavy in the past few months.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Our Methodology
Here is our list of the 10 dividend ETFs to buy now. The aim of the article is to provide readers with a basic rundown of some of the top dividend ETFs in the US. All the ETFs listed below trade on exchanges in the United States.
Photo by Nathan Dumlao on Unsplash
Dividend ETFs to Buy Now
10. Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY)
Net Assets: $956 million
Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY) is an exchange traded fund that tracks the investment returns of the NASDAQ US Dividend AchieversTM 50 Index which comprises a group of companies that have a consistent record of dividend increases.
One of the top holdings of the Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY) is Altria Group, Inc. (NYSE:MO), a company that makes and sells tobacco products and wine.
At the end of the second quarter of 2021, 47 hedge funds in the database of Insider Monkey held stakes worth $948 million in Altria Group, Inc. (NYSE:MO), up from 38 in the previous quarter worth $1.1 billion.
Just like Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), and The Home Depot, Inc. (NYSE:HD), Altria Group, Inc. (NYSE:MO) is one of the stocks that elite investors are buying.
In its Q2 2021 investor letter, Broyhill Asset Management, an asset management firm, highlighted a few stocks and Altria Group, Inc. (NYSE:MO) was one of them. Here is what the fund said:
“Altria (MO) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 20%. We shared our thoughts on these regulations during the quarter, which are available here.
MO Valuation. MO is up ~ 18% YTD (even accounting for the recent sell-off). We expect MO to generate close to $5 in annual FCF per share over the next few years, putting the stock at ~ 10x, which is less than half the market’s multiple today. Over the last decade, shares have traded at an average multiple of 15x and within a range of ~ 10x – 20x (+/-1 standard deviation). The stock yields 7.2% at the current price, close to a 6% premium to treasuries. Historically, shares have traded closer to a 3% premium to the 10Y, which would imply a ~ $75 share price.”
9. FlexShares Quality Dividend Index Fund (NYSE:QDF)
Net Assets: $1.5 billion
FlexShares Quality Dividend Index Fund (NYSE:QDF) is an exchange traded fund that tracks the investment returns of the Northern Trust Quality Dividend Index which comprises a group of large and mid-sized companies in the US with relative financial stability compared to the Northern Trust 1250 Index.
FlexShares Quality Dividend Index Fund (NYSE:QDF) holds a large stake in Cisco Systems, Inc. (NASDAQ:CSCO), a firm that markets networking products for the communications and information technology industry.
At the end of the second quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $4.2 billion in Cisco Systems, Inc. (NASDAQ:CSCO), up from 59 in the previous quarter worth $5.1 billion.
8. WisdomTree U.S. MidCap Dividend Fund (NYSE:DON)
Net Assets: $3 billion
WisdomTree U.S. MidCap Dividend Fund (NYSE:DON) is an exchange traded fund that tracks the investment returns of the WisdomTree US MidCap Dividend Index which comprises a group of mid-sized, dividend-paying stocks trading in the US.
A top holding of the WisdomTree U.S. MidCap Dividend Fund (NYSE:DON) is Fidelity National Financial, Inc. (NYSE:FNF), a Florida-based business that provides various types of insurance products across the United States.
Among the hedge funds being tracked by Insider Monkey, Houston-based investment firm Windacre Partnership is a leading shareholder in Fidelity National Financial, Inc. (NYSE:FNF) with 10.8 million shares worth more than $470 million.
In its Q1 2021 investor letter, Merion Road Capital Management, an asset management firm, highlighted a few stocks and Fidelity National Financial, Inc. (NYSE:FNF) was one of them. Here is what the fund said:
“During the period I added to our position in Fidelity National Financial (“FNF”). FNF is the nation’s largest title insurer with 33% market share. It was built over the last 30 years by Bill Foley, who revolutionized the industry with his emphasis on eliminating bureaucracy, utilizing technology to streamline operations, and maximizing customer service. He is well-regarded as a savvy investor and consummate deal-maker having acquired and divested multiple entities both in title and ancillary fields. He continues to serve as the chairman of FNF with a personal stake in the company worth hundreds of millions.
While title insurance is technically insurance, it is a bit of a unique animal. Being that the insurer writes a policy based on past events, not unknowns in the future, losses are relatively small and predictable. The more data an insurer can analyze, the less likely they are to experience a claim; and the more efficiently they can analyze the data and process the application, the lower their costs will be. FNF has invested in automating its work stream through their ownership of NextAce (automated search), SoftPro (document production and closing), and multiple other cloud-based platforms. Due to these investments, FNF boasts industry leading margins and is able to attract more third party agents who can leverage their service offering.
Last year FNF acquired the outstanding interest in FGL Holdings (“F&G”), a fixed indexed and fixed rate annuity provider. Though this appears to be a financial rather than strategic acquisition, there should be some opportunities to grow the combined business. Notably, the acquisition afforded F&G an improved credit profile which has led to ratings upgrades. These upgrades allow F&G to address new distribution lines, such as in the bank market where FNF has strong relationships through their title and escrow business. The company announced that since launching in July 1st it had already achieved $500mm of sales in this channel (vs. full year sales of ~$4bn).
FNF is likely over-earning right now based on the recent spike in mortgage activity. Looking out to 2022 I estimate that earnings should step down to something a little shy of $5.00/sh. At current prices we are collecting a double digit earnings yield for a business with strong market positioning and a superb capital allocator. Last year they repurchased a bunch of stock in Q1 at depressed prices and have announced their intent to acquire another $500mm over the next 12 months.”
7. iShares International Select Dividend ETF (BATS:IDV)
Net Assets: $4 billion
iShares International Select Dividend ETF (BATS:IDV) is an exchange traded fund that tracks the investment returns of the Dow Jones EPAC Select Dividend Index which comprises a group of high-yield dividend stocks in non-US developed markets.
iShares International Select Dividend ETF (BATS:IDV) holds a large stake in Rio Tinto Group (NYSE:RIO), a corporation that operates in the diversified metals and mining industry with core interests in the mining of aluminum, copper, diamonds, and gold.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in Rio Tinto Group (NYSE:RIO) with 1.8 million shares worth more than $156 million.
6. ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL)
Net Assets: $8 billion
ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) is an exchange traded fund that tracks the investment returns of the S&P 500 Dividend Aristocrats Index which measures the performance of high yield dividend stocks in the US.
One of the premier holdings of the ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) is Exxon Mobil Corporation (NYSE:XOM), an organization that has interests in the oil and gas business.
At the end of the second quarter of 2021, 68 hedge funds in the database of Insider Monkey held stakes worth $3.6 billion in Exxon Mobil Corporation (NYSE:XOM), up from 65 in the preceding quarter worth $2.7 billion.
In addition to Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), and The Home Depot, Inc. (NYSE:HD), Exxon Mobil Corporation (NYSE:XOM) is one of the stocks that elite investors are buying.
In its Q1 2021 investor letter, Harding Loevner highlighted a few stocks and Exxon Mobil Corporation (NYSE:XOM) was one of them. Here is what the fund said:
“We felt that our remaining energy holding, ExxonMobil, with its stronger balance sheet, was in a better position to ride out the cyclical slump in oil demand and even perhaps take advantage of it by investing counter-cyclically. While ExxonMobil does plan to increase capital expenditure, we’ve been disappointed in its regrettable failure to address ongoing emission trends, which reflects poorly on management’s foresight. As a result, we sold our ExxonMobil holdings.”
5. SPDR S&P Dividend ETF (NYSE:SDY)
Net Assets: $19 billion
SPDR S&P Dividend ETF (NYSE:SDY) is an exchange traded fund that tracks the investment returns of the S&P High Yield Dividend Aristocrats Index which comprises a group of companies listed on the exchanges in the US that have high dividend yields.
A premier holding of the SPDR S&P Dividend ETF (NYSE:SDY) is AT&T Inc. (NYSE:T), a company that provides telecommunications, media, and technology solutions across most of North and Latin America.
At the end of the second quarter of 2021, 68 hedge funds in the database of Insider Monkey held stakes worth $2.8 billion in AT&T Inc. (NYSE:T), up from 63 in the previous quarter worth $2.7 billion.
In its Q1 2021 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and AT&T Inc. (NYSE:T) was one of them. Here is what the fund said:
“Nelson Capital stayed busy in the first quarter, making several adjustments within our core portfolio. In the communication services sector, we sold AT&T (tkr: T). Over the years, AT&T has made several poor acquisitions, especially in the content realm, leaving the company saddled with debt and unable to change directions.”
4. iShares Core Dividend Growth ETF (NYSE:DGRO)
Net Assets: $20 billion
iShares Core Dividend Growth ETF (NYSE:DGRO) is an exchange traded fund that tracks the investment returns of the Morningstar US Dividend Growth Index which comprises a large group of companies that trade on exchanges in the United States.
iShares Core Dividend Growth ETF (NYSE:DGRO) has invested heavily in Pfizer Inc. (NYSE:PFE), a New York-based firm that makes and sells pharmaceutical products across the world.
At the end of the second quarter of 2021, 67 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in Pfizer Inc. (NYSE:PFE), up from 65 in the preceding quarter worth $2 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Pfizer Inc. (NYSE:PFE) was one of them. Here is what the fund said:
“Our underweights in health care and staples contributed to relative performance during the period. As we continue to focus the portfolio on high-conviction ideas, we sold Pfizer in late 2020, in the health care sector.”
3. Schwab U.S. Dividend Equity ETF (NYSE:SCHD)
Net Assets: $26 billion
Schwab U.S. Dividend Equity ETF (NYSE:SCHD) is an exchange traded fund that tracks the investment returns of the Dow Jones U.S. Dividend 100 Index which comprises a group of companies that have a consistent dividend history and strong fundamentals.
One of the biggest holdings of the Schwab U.S. Dividend Equity ETF (NYSE:SCHD) is The Home Depot, Inc. (NYSE:HD), an organization that operates as a home improvement retailer and is based in Georgia.
Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm AQR Capital Management is a leading shareholder in The Home Depot, Inc. (NYSE:HD) with 1.1 million shares worth more than $360 million.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and The Home Depot, Inc. (NYSE:HD) was one of them. Here is what the fund said:
“Notable contributors to the Fund’s returns this quarter (included) Home Depot. Home Depot (8.9% weight in the Fund) continued to benefit from a red-hot housing and home improvement market, delivering record financial performance in 2020. As a high return on invested capital business, any step-up in growth results in considerable shareholder value creation. While 2021 comparable sales may not yield impressive headline results, we believe there are several secular tailwinds supporting continued housing investment, including millennials entering prime household formation/peak earnings years, relatively low interest rates, and government policies.
Home Depot (8.9% weight in the Fund): The big orange sign of Home Depot is a familiar sight for homeowners across the country. Despite the rise of Amazon, Home Depot has generated outstanding results for shareholders during the rise of eCommerce, even as Home Depot’s end market in housing suffered the worst collapse in a century. Over the last fifteen years, a period which began at the peak of the housing bubble, Home Depot’s stock has generated annual returns of 17% a year, outperforming the S&P 500 by approximately 7% a year.
But while homeowners can attest to their continued shopping at Home Depot, they may not be aware that only about half the company is dedicated to serving Do It Yourself homeowners, with the other half acting as a key supplier to small contractors – which the company calls Pros – who depend on Home Depot as a mission critical business partner.
While the company does not report on their contractor business separately from their homeowner business, they have regularly offered comments indicating that contractors make up just 4% of their customer base, but about 45% of revenue. Basic math implies…”[read the entire letter here]
2. Vanguard High Dividend Yield Index Fund ETF Shares (NYSE:VYM)
Net Assets: $48 billion
Vanguard High Dividend Yield Index Fund ETF Shares (NYSE:VYM) is an exchange traded fund that tracks the investment returns of the FTSE High Dividend Yield Index. The index consists of companies that pay higher-than-average dividends.
A flagship holding of the Vanguard High Dividend Yield Index Fund ETF Shares (NYSE:VYM) is The Procter & Gamble Company (NYSE:PG), a business that makes and sells branded consumer packaged goods.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Cedar Rock Capital is a leading shareholder in The Procter & Gamble Company (NYSE:PG) with 7.5 million shares worth more than $1 billion.
1. Vanguard Dividend Appreciation Index Fund ETF Shares (NYSE:VIG)
Net Assets: $76 billion
Vanguard Dividend Appreciation Index Fund ETF Shares (NYSE:VIG) is an exchange traded fund that tracks the investment returns of the S&P High Yield Dividend Aristocrats Index which comprises a group of high-yield dividend stocks on the S&P Composite 1500 Index.
One of the premier holdings of Vanguard Dividend Appreciation Index Fund ETF Shares (NYSE:VIG) is Johnson & Johnson (NYSE:JNJ), a corporation that makes and sells a range of health-related products globally.
At the end of the second quarter of 2021, 88 hedge funds in the database of Insider Monkey held stakes worth $7 billion in Johnson & Johnson (NYSE:JNJ), up from 81 in the previous quarter worth $6.9 billion.
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Disclosure. None. 10 Dividend ETFs to Buy Now is originally published on Insider Monkey.
