Why are investors flocking to dividend ETFs?

Moomoo Learn joined discussion · Aug 12, 2022 01:55

Amid uncertain macroeconomics conditions and market turbulence, investors start turning to dividend stocks with fixed income stream.

And if you're not sure which dividend stock to pick, maybe to purchase dividend exchange-traded funds (ETFs) is a smarter choice.

Dividend ETFs offer a simple and straightforward solution to getting exposure to stocks that regularly distributing dividends to their shareholders. Investors could take that dividend as income or reinvest it back into the fund.

In fact, dividend ETFs that track the highest-yielding stocks have taken in about $25 billion in assets by the end of June in 2022, a new record for the value-oriented category, and inflows could reach $50 billion by year-end, according to Bloomberg Intelligence senior ETF analyst Eric Balchunas.

ETF Picking: 6 factors you must know

Dividend ETFs are well known as an ideal investment option for risk-averse investors due to benefits such as low expense ratios, diversification, regular income stream, and so on.

However, there are so many dividend ETFs in the market. Only when you learn to analyze different ETFs will you be able to pick out the one that best suit your investing goal.

Here are some primary factors that you may want to consider when analyzing a dividend ETF:

The dividend yield

The dividend growth

5-year returns

Expense ratio (Look for an expense ratio under 0.50%, but lower is better.)

Underlying dividend stocks

Assets under management or AUM

Examples of dividend ETFs

$Vanguard Dividend Appreciation ETF(VIG.US)$- Dividend yield (TTM): 1.53%

The Vanguard fund VIG, with a massive $64 billion in assets at present, is one of the top 15 exchange-traded products in the U.S.

It has a low fee structure, with just 0.06% in annual expenses or a mere $6 per year on every $10,000 you invest. And it simply holds the largest 250 or so dividend payers in the U.S.

$Schwab US Dividend Equity ETF(SCHD.US)$- Dividend yield (TTM): 2.83%

If you want a leading large-cap dividend ETF but are looking for a bit more yield, consider SCHD, which also charges just 0.06% annually in fees but a more focused approach to drive higher yield with its shorter list of 100 holdings.

Thanks to this approach, you'll tap into nearly double the yield offered by straightforward S&P 500 index funds at present.

Since about 40% of SCHD's assets are in the top 10 positions alone, volatility may be inevitable.

$Ishares Select Dividend ETF(DVY.US)$- Dividend yield (TTM): 3.16%

DVY takes a more balanced approach with only about 19% weighting toward its top 10 positions to provide a smoother ride.

It also layers on a screening methodology that doesn't just demand decent yield but also features five or more years of consecutive dividends paid to shareholders – meaning you won't get stocks that recently cut distributions during the pandemic or for other reasons.

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