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A Closer Look at Dividend ETFs

A look at the five biggest dividend ETFs and which industries and stocks they have been focusing on.

With interest rates currently at near-zero levels, investors have been putting their money into ever riskier bonds in search of yield. The surge lately in dividends from U.S. corporations – themselves sitting on piles of cash – makes dividend ETFs an increasingly popular source of regular income. But all dividend ETFs are not the same.

According to ETF data prepared by financial data firm Axioma for Institutional Investor, the five largest dividend ETFs by assets (see the table below) each have some significant differences in their approach to securing dividend income.

For starters, the top five ETFs (by assets) are pretty well diversified across a variety of sectors. However, the funds have allocated significantly different weights across a variety of different sectors.

The Vanguard High Dividend Yield fund, with has $16.2 billion in assets, has evenly spread its holdings over consumer staples (17.41 percent), energy (12.72 percent), financials (11.74 percent), health care (12.11 percent), industrials (12.22 percent) and information technology (10.01 percent). Year-to-date, it has 15.53 percent.

By contrast, iShares Dow Jones Select Dividend fund – the next biggest fund by assets with $12.7 billion – has returned 15.71 percent so far this year with a heavier focus on industrials (16.73 percent), as well as a hefty 31.26 percent in utilities, where the Vanguard High Dividend Yield fund has just 8.43 percent. And where Vanguard had relatively high holdings of healthcare, information technology and energy, the Dow Jones Select Dividend has just 4.1, 1.16 and 3.65 percent respectively.

The third biggest fund, SPDR S&P Dividend ETF, has returned 19.48 percent so far this year by favouring consumer staples (17.13 percent), much like the Vanguard High Dividend Yield Fund, but also placing relatively large bets on financials and industrials (15.89 and 16.01 percent respectively).

Significantly, no fund has invested more heavily in a single sector than any other, outside of the large bet by the iShares Dow Jones Select Dividend on utilities stocks. For the rest of the funds, there is a relatively small concentration of sectors and stocks, with each of the funds selecting their own distinctive basket of stocks to generate that dividend income.

 Top Dividend ETFs
AUM1FUND NAMETOP three HOLDINGS
(WEIGHT)2
heaviest sector weight
(% of market cap)2
RETURNS
(Year-to-date)1
price3
$16,172.8Vanguard Dividend Appreciation ETF (VIG)
  • Pepsico Inc (0.042475)
  • Coca-Cola (0.042112)
  • Abbott Labs (0.041804)
  • Consumer Staples, 24%
  • Industrial, 18%
  • Energy, 12%
16.37%$69.61
$12,777.4iShares Dow Jones Select Dividend Index Fund (DVY)
  • Lorillard, Inc. (0.036216)
  • Lockheed Martin Corporation
    (0.028197)
  • Chevron Corp (0.021535)
  • Telecommunications, 31%
  • Industrials, 17%
  • Consumer Staples, 13%
17.03%$66.99
$12,427.1SPDR S&P Dividend ETF (SDY)
  • AT&T Inc (0.024709)
  • Pitney Bowes Inc (0.024253)
  • HCP Inc (0.022775)
  • Consumer Staples, 17%
  • Industrials, 16%
  • Financials, 16%
20.74%$70.22
$6,158.3Vanguard High Dividend Yield (VYM)
  • Exxon Mobile Corp (0.058424)
  • Microsoft Corp (0.036585)
  • General Electric Co (0.034541)
  • Consumer Staples, 17.41%
  • Industrials, 12.24%
  • Financials, 11.74%
18.31%$58.42
$3,650.0iShares High Dividend Equity Fund (HDV)
  • AT&T Inc (0.094363)
  • Microsoft Corp. (0.077307)
  • Johnson & Johnson (0.071249)
  • Healthcare 22.94%
  • Telecommunications 17%
  • Information Technology, 13.89%
18.02%$69.294
1 From ETF Database. Valid as of May 5.
2 Data supplied by Axioma. Data valid as of May 15.
3 From Bloomberg; Price at end of May 21.
4 From ishares.com; Price at end of May 21.

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