To generate passive income while also potentially earning capital appreciation, many investors turn to dividend paying stocks. Dividends are regular payments companies deliver to shareholders out of their profits. These are usually paid quarterly or annually. But to also get instant diversification, many investors also turn to dividend paying ETFs. These are professionally managed funds that invest in a variety of dividend paying stocks. Each has its own strategy, focus and overall goal.
One of the most popular dividend paying ETFs out there is the Schwab U.S. Dividend Equity ETF (SCHD). This fund stands out for diversification and its ultra low expense ratio of 0.06%. It invests in high quality companies with a track record for sustainability of dividends. But it also screens companies for strong financials. And it has delivered an impressive five year return of about 29%.
But it’s not the only powerhouse out there. There are other dividend ETFs that may outperform SCHD in the next decade. This may be due to various factors like different strategies, exposure to other sectors and more. So let’s take a look at some contenders.
Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation ETF (VIG) focuses on large cap companies with a history of increasing their dividends year over year. This may in turn lead to higher income growth for investors. In addition, VIG has a higher focus on the technology sector than SCHD. VIG’s exposure to tech is around 28%, while SCHD’s exposure is about 8%. The tech sector has overall outperformed in recent years, especially with the growth of artificial intelligence (AI). Moreover, VIG also has a high concentration in consumer staples. This is considered a defensive sector that could remain resilient even during economic downturns. Additionally, VIG is more diverse by investing in more than 300 stocks as opposed to SCHD’s holdings of 102.
But VIG has other perks as well. It holds about $116.5 billion in net assets. And it also has a lower expense ratio than SCHD of 0.05%.
Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF (VYM) invests in quality large-cap companies recognized for having high dividend yields and projected to have above average dividend yields. This could help it deliver higher yields than SCHD over time. In addition, the fund stands out for its low expense ratio of 0.06%. And it holds net assets of about $84.55 billion.
Fidelity High Dividend ETF (FDVV)
The Fidelity High Dividend ETF (FDVV) invests in large and mid cap companies expected to grow their dividends over time. This could make it a top contender for those seeking long term dividend growth. Its top holdings include Magnificent Seven giants like NVIDIA, Apple and Microsoft. It also has a competitive expense ratio of 0.15%. And it has a 5 year return of about 79.%, outpacing SCHD over the same time frame.
Amplify CWP Enhanced Dividend Income ETF (DIVO)
The Amplify CWP Enhanced Dividend Income ETF (DIVO) is a bit different from most funds on this list. It’s an actively managed fund that seeks income by investing in quality dividend paying stocks and opportunistically writing covered calls on those stocks. Dividend and option income may offer lower share price volatility as opposed to the overall market during market declines.
The fund has a 5 year return of around 39%. And it has net assets of around $5.68 billion. But because it’s actively managed, it has a higher expense ratio of 0.56%.
SPDR Dow Jones Industrial Average ETF Trust (DIA)
The SPDR Dow Jones Industrial Average ETF Trust (DIA) invests in 30 blue chip stocks. With a 5 year return of about 58%, it has outperformed the SCHD over that time frame. And it has a competitive expense ratio of 0.16%.
Capital Group Dividend Value ETF (CGDV)
The Capital Group Dividend Value ETF (CGDV) is another actively managed fund that stands out for diversification. It invests in U.S. and international stocks, as well as bonds. And it has outperformed SCHD with a 5 year return of about 81%. Moreover, it has an expense ratio of 0.33%.
WisdomTree U.S. Total Dividend Fund (DTD)
The WisdomTree U.S. Total Dividend Fund (DTD) also shines for diversification as it invests in dividend paying companies across all market caps. Its main holdings are in the financials, information technology and healthcare sectors. And it outperforms SCHD with a 5 year return of about 62%. In addition, it has a competitive expense ratio of 0.28%.