The Best Dividend ETFs for Q4 2022

Dividend exchange-traded funds (ETFs) are designed to invest in a basket of dividend-paying stocks. Steady, attractive dividends tend to be associated with larger, less risky blue-chip companies, although each company can share its profits with shareholders, and some of the highest yields are offered by smaller, less established names. Many ETFs operating in this space favor fixed income with room for growth. However, others may seek higher, potentially less secure dividend payouts in the hope that these generous payouts will be sustainable and not detrimental to the company’s finances or future growth prospects.

Dividend ETFs are often favored by more risk-averse, income-seeking investors. Investors also use them to balance riskier investments in their portfolios. In addition to offering a regular stream of income, these ETFs generally offer much lower management expense ratios (MERs) than dividend-focused funds.

Basic Takeaways

  • Dividend exchange-traded funds (ETFs) have outperformed the broader US market over the past year.
  • The dividend ETFs with the best one-year total returns are FDL, HDV and DHS.
  • The top holding of each of these funds is Exxon Mobil Corp.

There are 109 smart dividend ETFs traded in the US, excluding inverse and leveraged ETFs, and funds with less than $50 million in assets under management (AUM). Dividend stocks, as measured by the benchmark S&P 500 Dividend Aristocrats Index, have outperformed the broader market over the past year. The index delivered a total one-year return of -3.7% compared to -11.0% for the S&P 500, since September 1, 2022. The best-performing ETF, based on last year’s performance, is the First Trust Morningstar Dividend Leaders Index Fund (FDL).

We look at the three best dividend ETFs for the fourth quarter (Q4) of 2022 below. All numbers are as of September 1, 2022. In order to focus on the investment strategy of the funds, the top holdings listed for each ETF do not include cash and holdings purchased with securities lending proceeds, except in unusual cases, such as when the cash portion is exceptionally large.

  • Return in one year: 11.0%
  • Expense ratio: 0.45%
  • Annual dividend yield: 3.58%
  • Quarterly Average Daily Volume: 1,142,157
  • Assets under management: $3.3 billion
  • Start date: March 9, 2006
  • Publisher: First Trust

FDL seeks to track the Morningstar Dividend Leaders Index, an index comprised of companies listed on the NYSE, NYSE Amex or Nasdaq that have demonstrated dividend consistency and dividend sustainability. The index does not include real estate investment trusts (REITs), traditionally a type of security that provides strong dividends. The ETF invests primarily in large caps and uses a blended approach, holding both growth and value stocks. Energy stocks account for the largest share of the fund’s portfolio at 20.2%, followed by financials and consumer staples companies.

FDL’s top holdings include Exxon Mobil Corp. (XOM), a global oil and gas company. AbbVie Inc. (ABBV), a biopharmaceutical company known for the immunosuppressant drug Humira. and Verizon Communications Inc. (VZ), a major provider of telecommunications services.

  • Return in one year: 7.7%
  • Expense ratio: 0.08%
  • Annual dividend yield: 3.41%
  • Quarterly Average Daily Volume: 1,195,143
  • Assets under management: $12.2 billion
  • Start date: March 29, 2011
  • Publisher: BlackRock Financial Management

HDV aims to track the Morningstar Dividend Yield Index, which consists of 75 established US stocks with a relatively high dividend yield. Healthcare stocks account for over 22% of the portfolio, followed by energy and consumer staples companies. The fund focuses on large-cap stocks that represent value and growth characteristics.

HDV’s portfolio is highly concentrated, with the top 10 holdings accounting for more than 48% of invested assets. The top three names in the portfolio are Exxon Mobil; Johnson & Johnson (JNJ), a pharmaceutical, medical device and consumer goods company. and Chevron Corp. (CVX), a global oil company and company.

  • Return in one year: 6.9%
  • Expense Ratio: 0.38%
  • Annual dividend yield: 3.79%
  • Quarterly Average Daily Volume: 78,606
  • Assets under management: $1.2 billion
  • Start date: June 16, 2006
  • Publisher: WisdomTree

DHS tracks the WisdomTree US High Dividend Index, an index of dividend-paying companies that is evaluated based on projected dividends for the coming year as well as factors such as value, quality and momentum. The fund targets US large-cap stocks. Energy, pharmaceutical biotech and life sciences, as well as food and beverage and tobacco stocks make up the bulk of the fund’s portfolio, making up more than 55%.

DHS’s top holdings include Exxon Mobil; Chevron; and the Coca-Cola Co. (KO), a global producer and marketer of beverages.

The comments, opinions and analysis expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in securities or adopt an investment strategy. Although we believe that the information provided here is reliable, we do not guarantee its accuracy or completeness. The opinions and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analysis contained in our content are as of the date of publication and are subject to change without notice. The material is not intended to be a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

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