The stock market was ravaged in 2022. There were few bright spots and in 2023 folks are seeking stability. In good times high-flying firms with the potential for explosive growth are attractive. In bear markets, however, dividend stocks – companies that pay reliable quarterly checks – are safe havens regardless of how bad the market is performing.
The Wall Street Journal (Buy Side), in collaboration with Refinitiv Lipper, a renowned domestic, global, and international data provider analyzed a list of 120 + funds. In consultation with in-house experts, they narrowed down their best bets based on each ETFs’ portfolio composition, track records, fees, and consistency over time.
#1 Overall
The Vanguard High Dividend Yield (VYM) is one of the largest and most respected index funds. With $55.6 billion under management, investors can expect a yield of roughly 3% which is higher than the broader market. It’s a much more diversified fund compared to its rivals, and in addition to the quarterly income, dividend-paying stocks can also rise in value over time.
Over the past three years, the VYM has delivered an 8.6% annual return and 8.8% per year over the past five years.
Best for Yield
Coming in at the best dividend ETF for yield is Schwab’s flagship offering – Schwab US Dividend Equity (SCHD). The payout is nearly a half percentage point better than VYM (3.44%) which is double the 1.55% average yield of the S&P 500.
This ETF is much choosier than its rivals, screening stocks based on five-year dividend growth rates, return on equity, and high cash flow to low debt. A cursory review of the fund’s top holdings reveals some familiar names – Texas Instruments, The Home Depot, Merck & Co., Amgen, PepsiCo, BlackRock, Broadcom, and more. In terms of 3-year performance, SCHD yielded an impressive 14.3% and 13.2% over five years.
Best for Safety
This sounds like an interesting category. We all want safety, but like anything, there’s a cost. The Vanguard Dividend Appreciation (VIG) is ideal for those who do not need income and are seeking less volatility than the S&P 500. This fund is made up of stocks with at least 10 consecutive years of rising dividend payments. This is akin to receiving a steady raise every year over time.
The average yield of 1.93% is considerably lower than the other funds here, but that is the price for safety over time. Again, the ETF’s companies are those that are actively growing their dividend. There are no risky high flyers here.
Best International
The previously mentioned ETFs are all US-centric. The benefit of an international ETF is tapping into a broader basket of holdings. The iShares International Dividend Growth (IGRO) ETF is a tad pricier in terms of the annual fee, but each of its principal holdings generates income well above 3%.
The fund’s growth approach is similarly rooted in targeting those companies that already have a proven track record of augmenting their dividends. In bear times dividend growth companies are more likely to continue maintaining their payouts as opposed to trimming their dividends to stay operationally afloat.
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