Searching For Consistent Income With ETFs

In last Monday’s Juice we used Trackstar, our proprietary sentiment indicator, to show you the five dividend ETFs financial professionals have been searching for most across the platforms of our 100+ financial media partners. 

Today’s Trackstar top five lists the most popular dividend ETFs among retail investors. 

And we have to say, we’re super impressed with the names on the mind of Main Street investors. They make a hell of a lot more sense than what the big money is searching for. 

First, the most searched dividend ETF by everyday investors — the Schwab US Dividend Equity ETF (SCHD) — makes a solid starting point and foundation for a dividend investing strategy. Like SPY and QQQ are to the broad market, SCHD is to the broad market of dividend payers. For whatever reason, SCHD doesn’t even make the top five for the pros. 

That said, there are similarities between the two lists, particularly in the #2 and #3 spots with the Vanguard Dividend Appreciation ETF (VIG) and the Vanguard High Dividend Yield ETF (VYM) ETFs, both solid names if you’re looking to diversify alongside SCHD as a core holding. 

In last Monday’s Juice, we promised we would look at the #4 and #5 most searched dividend ETFs among financial pros. The Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG) and iShares Emerging Markets Dividend ETF (DVYE). Long names that almost make our head spin. 

As we note with the SCHD-VIG-VYM combo and other dives deep inside sector- and strategy-specific ETFs, we are all for going through this research process to ensure you don’t buy an ETF that replicates what you’re already doing elsewhere. However, as is the case throughout an investing world with an endless number of choices, you can take it too far. 

You can reinvent the wheel. You can create more trouble (and work) for yourself than it’s worth. While we don’t think KNG and DVYE are terrible ETFs, we just don’t see their utility for most investors seeking diversification in a long-term portfolio. 

For example, KNG tracks an index and, subsequently, also owns the dividend aristocrats (companies that increased their dividend payment for at least 25 consecutive years), but also writes covered calls against these names. Not a terrible idea, however, the ETF that simply tracks the dividend aristocrat index without writing covered calls — the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) — has significantly outperformed KNG over the last five years (+39.5% to +17.4%). 

And DVYE which, as its name implies, owns 100 dividend-paying emerging markets stocks. From our standpoint, if you want emerging markets exposure you do it with a broader, not dividend-specific ETF. Owning two emerging market ETFs in a relatively small portfolio doesn’t make a ton of sense over the long term. 

Because, let’s face it, you’re better off focusing on the core names we love here at The Juice (SPY, QQQ, SCHD, IWM) alongside a couple or few other ETFs that take similar strategic and geographic approaches, but with different exposures to the same names as well as companies you won’t have access to in your core ETF suite. 

The Bottom Line: Diversification. As we often say, it’s not only about asset allocation and broad stock/ETF selection. It’s also about using diverse strategies. Sometimes that strategy might be, for example, owning ETFs that focus on different classes of dividend stocks. 

You know The Juice is on board with that. 

Please let us know the areas of ETF investing where you’d like us to take deep dives using the feedback link at the bottom of this page.

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