6 Best High Dividend Mutual Funds And ETFs
Consider these funds to hedge against low interest rates.
During periods of low interest, dividend income is becoming more attractive to investors looking for safer places to park their investments. Dividend mutual funds and exchange-traded funds are advantageous in this environment. Because bond yields remain extremely low, dividend-yielding stocks offer alternatives to investing in cash-generating securities, said Derek Horstmeyer, a professor of finance at George Mason University. Adding dividend funds to a portfolio could provide investors with some downside protection as stock market valuations remain very high, he says. Here are six high-dividend mutual funds and ETFs to consider for your portfolio.
Invesco S&P Ultra Dividend Revenue ETF (ticker: RDIV)
The Invesco S&P Ultra Dividend Revenue ETF is a large-cap ETF based on the S&P 900 Dividend Revenue-Weighted Index. U.S. dividend ETFs were “relatively popular in the first half of 2021 as investors sought equity income through diversified portfolios,” said Todd Rosenbluth, director of mutual funds and ETF research at CFRA Research, a New York-based financial research firm. Invesco S&P Ultra Dividend Revenue ETF and SPDR Portfolio S&P 500 High Dividend ETF (JAVELIN) were among the other top performers in the first half,” he says. “RDIV offers multi-cap dividend exposure and seeks to avoid value pitfalls. The ETF uses a multi-step process to S&P 500 and S&P MidCap 400 indices for 60 stocks.” The fund has a year-to-date return of 21%, a one-year return of 51% and a three-year return of 5%.
Schwab US Dividend Equity ETF (SCHD)
The Schwab US Dividend Equity ETF outperformed the S&P 500 Index through June. The ETF contains companies that have consistent records of dividend growth and strong fundamentals. “U.S. dividend and fund-raised ETFs added $28 billion in the first half of 2021,” Rosenbluth said. “Unlike in 2020, when companies regularly suspend dividend programs, in 2021 investors looked to generate income from equity.” This ETF received $6.5 billion in new money in the first half of 2021, and investors “were rewarded because SCHD’s 20% gain in the first half surpassed the S&P 500’s 15%,” he says. “We continue to find SCHD attractive, along with other high-performing US dividend ETFs that deserve attention.” The fund has a year-to-date return of 21%, a one-year return of 41% and a three-year return of 17%.
SPDR Portfolio S&P 500 High Dividend ETF (JAVELIN)
The SPDR Portfolio S&P 500 High Dividend ETF is a high-yield version of the S&P 500 Index. The $4.7 billion ETF owns the 80 stocks with the highest dividend yields in the broader benchmark, and this has “resulted in a value shift,” Rosenbluth says. “Relative to the SPDR S&P 500 ETF Trust (SPY), this ETF has greater exposure to financials (23% of assets versus 11%), real estate (20% versus 2.6%) and energy (14% versus 2.9%) and less information technology (6.5% vs. 27%) and consumer discretionary (3.8% vs. 12%),” he says. The ETF offers a 4% dividend yield, which is nearly triple that of SPYs. The fund has a year-to-date -date yield of 23%, a one-year yield of 49% and a three-year yield of 7%.
Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF is a passively managed ETF that tracks the FTSE High Dividend Yield Index. Top positions include JPMorgan Chase & Co. (JPM), Johnson & Johnson (JNJ) and Home Depot Inc. (HD). This ETF has 412 stocks, focuses on income, and is broadly diversified. The fund has a moderate to aggressive risk and is suitable for investors with a longer investment horizon. Dividend mutual funds and ETFs are attractive to investors because dividends are reinvested, said Stuart Michelson, a professor of finance at Stetson University in Florida. The one-year return is 33% and the three-year return is 10%.
Fidelity Dividend Growth Fund (FDGFX)
The Fidelity Dividend Growth Fund is a big hood diversified domestic equity fund and invests in high quality stocks. Zach Turner started managing the portfolio in July 2020, although FDGFX is more than 25 years old. The fund’s principal holdings are Microsoft Corp. (MSFT), Wells Fargo & Co. (WFC) and Visa Inc. (V). Stocks that pay dividends can complement fixed-income assets while creating the opportunity for capital appreciation, said Michael Underhill, chief investment officer of Capital Innovations. The expense ratio is slightly higher at 0.49% because it is an actively managed fund. The fund has a year-to-date return of 20%, a one-year return of 40% and a three-year return of 12%.
Vanguard Real Estate ETF (VNQ)
The Vanguard Real Estate ETF invests in the stocks issued by real estate investment trusts, also known as: REITs — companies purchasing industrial and office buildings, hotels and other real estate. VNQ weighs approximately 38% toward specialty REITs, but has also allocated significant portions of its portfolio to industrial, healthcare, and residential REITs. The top four holdings on July 31 were the Vanguard Real Estate II Index Fund, American Tower Corp. (GOVERNMENT OFFICE), Prologis Inc. (PLD) and Crown Castle International Corp. (CCIA). The expense ratio is 0.12% and the fund generates a dividend yield of 2.2%. Real estate investments tend to be more volatile than other sectors, and investors focusing on adding funds with the highest dividend yields could increase their risk, Michelson says. The fund has a one-year return of 38%, a three-year return of 13% and a five-year return of 9%.
Best High Dividend Mutual Funds and ETFs:
— Invesco S&P Ultra Dividend Earnings ETF (RDIV)
— Schwab US Dividend Equity ETF (SCHD)
— SPDR Portfolio S&P 500 High Dividend ETF (JAVELIN)
— Vanguard High Dividend Yield ETF (VYM)
— Fidelity Dividend Growth Fund (FDGFX)
– Vanguard Real Estate ETF (VNQ)