The Difference Between Dividend ETFs As Investors Seek Income

In Tuesday’s Juice, we floated the idea of finding companies that pay reliable and growing, but also high-yielding dividends as we appear to be entering a low — or, at least, lower — interest rate environment.

Today, we hit up Trackstar, our proprietary tool that measures search interest across the platforms of our 100+ financial media partners, to look at dividend ETFs. In doing so, we can add color to the differences not only between different types of dividend ETFs, but different kinds of dividend-paying stocks. If there’s even that much of a difference at all. 

In the process, we’ll tell you where we think it makes sense to put your money. 

So, let’s see.

We can conduct this exercise by assessing some of the top holdings in a few of the most-searched dividend ETFs in Trackstar. 

Always the leader of the pack, the Schwab US Dividend Equity ETF (SCHD) is the dividend-focused equivalent of SPY and QQQ. It’s basically a broad market dividend ETF that can — and probably should — be a staple in most long-term portfolios. 

Among SCHD’s top holdings are Lockheed Martin (LMT), Home Depot (HD), Coca-Cola (KO) and Cisco Systems (CSCO). So, right away, you’re diversifying from SPY and QQQ, which hold these names (SPY owns all four and QQQ owns CSCO), but in smaller concentrations. While all four of these stocks make up more than 4% each in SCHD, they take up a fraction of the space in SPY and QQQ.

Now let’s look at the dividend yield and dividend increase streaks of all four stocks. 

Impressive. 

And the yields aren’t too shabby. 

So, for comparison, let’s pick four of the top holdings from the Vanguard High Dividend Yield ETF (VYM). It has “high dividend yield” in its name so it must be special. 

First, HD and KO both show up on the top ten. From there, let’s look at four other top ten names in VYM spanning sectors. 

At a glance, there is not much difference between our selections. 

Did we cherry pick stocks? Sure, we did. But we stayed mostly away from tech and spread our cherry picking across sectors. 

To see if we provided an accurate representation of the two funds on dividend yield, let’s consider what these ETFs actually yield. 

• SCHD, which is a mere broad market dividend fund, yields 3.62%
• VYM, which is, by name and approach, a high dividend fund, yields 2.63%. 

That’s interesting. 

In terms of performance, SCHD is up about 2.0% over the last month, 9.1% YTD and 18.7% over the last year. While VYM is up approximately 3.3% over the last month, 13.3% YTD and 22.9% over the last year. 

So, pretty similar on returns, but the fund that doesn’t promote itself as a high-yield fund has a higher yield than the one that does. 

Go figure. 

As far as the other names in today’s Trackstar list are concerned. While both are fine funds, the Vanguard Dividend Appreciation ETF (VIG) and iShares Core Dividend Growth ETF (DGRO) really don’t give you unique enough exposure to own them over SPY, QQQ and SCHD. 

The SPDR Portfolio S&P 500 High Dividend ETF (SPYD) is interesting. It yields a robust 4.15%, which is close to high-yield savings account territory. And, soon, will probably be even higher. Plus, it owns some relatively unique names in its top ten. We’re going to save our thoughts on SPYD for Monday’s Juice because we want to play with it in association with running a stock screen. 

This will be a fun analysis (assuming you’re a stock market nerd like The Juice is!). 

For now — and SPYD aside until Monday —

This is why you have to dig deeper when you’re researching ETFs. A fund name doesn’t tell the entire story. As is the case with AI ETFs that have artificial intelligence in their name, they’re not always the clear choice. 

You shouldn’t chase yield when picking individual dividend stocks. So, you shouldn’t chase yield when looking for dividend ETFs. And definitely not if all you’re doing is glancing at a name and some marketing material. 

The Bottom Line: If we had to pick between the top four most-searched dividend ETFs in Trackstar today, we would go with SCHD all day long. We like the less specific, broader-market approach. If you really want yield, you’re better off supplementing a more wide-ranging dividend ETF like SHCD with the cream of the crop high-yielding dividend names. 

Or maybe with SPYD? We’ll see. 

Solid companies that happen to have high dividend yields will have sustainable dividends (as in, they’ll be able to continue to afford to pay their dividends), dividend growth, revenue and profit growth and, most likely, a stock price with considerable upside. As indicated, we’ll show you how to find these stocks and if you should use SPYD to get at them in Monday’s Juice.

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