Top ETFs for Income and Value
While in today’s low-rate environment it’s understandable that investors are tempted by high yields; but quality counts too, cautions Kuen Chan, fund expert and contributing editor to The Complete Investor.
An unsustainably high dividend can compromise a company’s future and eventually may be reduced or even eliminated.
If you’re seeking income, our Income/Value model portfolio offers plenty of attractive plays. The following two high-quality income ETFs in Core ETF Portfolio are additional solid choices.
Vanguard Dividend Appreciation ETF (VIG) tracks the NASDAQ US Dividend Achievers Select Index. While its yield isn’t particularly exciting, the payout level is both safe and likely to grow.
Companies in the index are required to have raised their annual regular dividend (“special” dividends don’t count) for at least 10 years in a row.
The 185 companies comprising the index have an average market cap of $56 billion, headlined by stalwarts like Johnson & Johnson, Coca-Cola, and PepsiCo. VIG’s expense ratio is an ultra-low 0.09 percent.
iShares Core High Dividend (HDV) tracks the Morningstar Dividend Yield Focus Index, made up of 75 US mega- and large-cap stocks screened for financial health and with strong dividend histories. HDV likewise has a low expense ratio, 0.12 percent.
Although there’s some overlap between the two, HDV focuses more on mega-cap dividend payers, while VIG offers more diversification and a more transparent screening process, with stocks having to meet clear criteria.
HDV yields more and has a superior dividend growth history (three-year annual dividend growth rate of 10.5 percent versus 7.5 percent for VIG). Overall we’d give HDV a slight edge, but we’d suggest owning both.
By Kuen Chan, Contributing Editor to The Complete Investor