Dividend ETF champs of the bull market

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ETFs focused on dividend-paying stocks performed better than plain vanilla index portfolios, judging by their returns during the bull market that recently hit the 10-year mark.

Among dividend-focused ETFs, 14 have a 10-year-or-longer history, allowing us to make a comparison. Eleven of the 14 beat the 17.21% annualized return of the SPDR S&P 500 ETF (SPY, expense ratio: 0.09%) over the period.

Here is a closer look at the three top-performing dividend ETFs of the past decade:

Invesco High Yield Equity Dividend Achievers ETF (PEY, 0.54%) was launched in December 2004 and has returned 20.25% annualized over 10 years. The underlying index screens the market for issues that have had 10 consecutive years of dividend increases. The 50 highest yielding stocks from this group are then weighted by yield to create the ETF. Heaviest sector concentrations are in utilities (26.02%), consumer staples (19.74%), and financials (17.74%). Sector caps are in place. PEY’s year-to-date performance is 11.36%. Annualized returns for the one-, three- and five-year periods ended March 8, 2019 are 5.83%, 12.37%, and 11.94%, respectively. Morningstar projects PEY’s forward yield at 4.52%.

WisdomTree U.S. MidCap Dividend Fund (DON, 0.38%) owns about 400 issues, the dividend payers in the mid-cap segment of the U.S. market. Stocks are weighted to represent their share of the aggregate cash dividends to be paid by component companies in the coming year. DON went public in June 2006 and has returned 20.21% annualized over the past decade. The ETF posted 11.06% for the year- to- date. Over the one-, three- and five-year periods ended March 8, DON’s annualized returns were 3.86%, 11.34%, and 9.24%, respectively. Largest sector positions are in real estate (15.04%), materials (9.75%), and capital goods (9.20%). DON employs sector and stock caps. Morningstar sees the fund’s forward yield at 3.58%.

WisdomTree U.S. SmallCap Dividend Fund (DES, 0.38%) uses the same methodology as its mid-cap relative applied to the small-cap segment of the U.S. market. The fund, launched in June 2006, recently held 725 stocks. Through March 8, DES had a 10-year annualized total return of 19.44%. Year-to-date return is 11.85%. For the one-, three- and five-year periods ended March 8, annualized returns for DES were 1.44%, 11.13%, and 6.97%, respectively. Sector concentrations are industrials (17.51%), consumer discretionary (16.47%), and real estate (13.25%). Sector and stock caps are in place. Morningstar’s estimate of the fund’s forward yield is 4.21%.

Here are the remaining dividend-focused ETFs that have a 10-year history:

  • WisdomTree U.S. High Dividend (DHS, expense ratio: 0.38%, 10-year annualized total return: 18.47%)
  • First Trust Morningstar Dividend Leaders (FDL, 0.45%, 18.28%)
  • WisdomTree U.S. Dividend ex-Financials (DTN, 0.38%, 18.26%)
  • SPDR S&P Dividend (SDY, 0.35%, 18.09%)
  • iShares Select Dividend (DVY, 0.39%, 17.88%)
  • Vanguard High Dividend Yield (VYM, 0.06%, 17.48%)
  • WisdomTree U.S. Total Dividend (DTD, 0.28%, 17.34%)
  • First Trust Value Line Dividend (FVD, 0.70%, 17.27%)
  • WisdomTree U.S. LargeCap Dividend (DLN, 0.28%, 16.91%)
  • Vanguard Dividend Appreciation (VIG, 0.08%, 15.65%)
  • Invesco Dividend Achievers (PFM, 0.55%; 15.00%)

Major dividend growth funds lagged the S&P 500 over the decade. The largest — VIG — came in next to last, while PFM anchored the bottom of the list, even as its sibling PEY topped it. PEY combined dividend growth with high yield.

In general, high- yield portfolios did well, perhaps reflecting the bird-in-hand benefit of taking payments now instead of waiting for dividend growth. Also, the WisdomTree technique of owning all dividend payers in a segment mostly produced above-plain-vanilla-index returns. Notably, the WisdomTree mid- and small-cap funds outperformed their large-cap and total market offerings.

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