In this article, we will take a look at the 10 best dividend ETFs in 2023. To see more such companies, go directly to 5 Best Dividend ETFs in 2023.
Dividend stocks remain in the limelight as investors dig in for a long period of uncertainty amid the Federal Reserve’s fight against inflation. While upbeat CPI data on April 12 sent the markets in the green, some believe the latest numbers won’t affect the Federal Reserve’s policy of interest rate hikes. The Wall Street Journal in a latest report quoted Steve Blitz, chief U.S. economist at TS Lombard, who believes that the March CPI numbers would not “move the needle for the Fed.” Blitz believes “the inflation problem doesn’t get solved by itself—it needs higher unemployment to get there.” Even if the Federal Reserve pauses interest rate hikes, it would take some time to get the economy back to normal and analysts believe piling into quality dividend stocks remains a viable option for long-term investors who want to avoid risks and volatility.
According to a report by Global X, during 1960 to 2017, high dividend stocks outperformed the S&P 500 by nearly 3.0% on an annualized basis. What makes dividend stocks attractive during recessions is their outperformance in high interest rate environments. The same Global X report says that dividend stocks outperformed the S&P 500 during 7 out of the 10 rising interest rate periods since 1960.
Another report by Anchor Capital Advisors sheds some light on the power of dividend reinvesting and compounding. The report said that if you had invested $100 in the S&P 500 Index in 2001, and reinvested all the dividends, your initial investment would have growth to $350 by July 2020. The report also said that Anchor’s analysis has shown that companies that pay dividends tend to have significantly low volatility as compared to those that don’t pay dividends. The report also mentions that contrary to the popular belief that dividend-paying companies usually operate in low-growth businesses, in reality, dividend payers are found across a variety of sectors.
A report by WisdomTree Research titled “The Dividends of a Dividend Approach” quotes an interesting study shared by Jeremy Siegel in his book The Future for Investors. The study, which WisdomTree shows with updates through 2022, demonstrates that from 1957 to 2022, highest quintile (basket of stocks with highest dividend yields in the study) outperformed the broad S&P 500 Index by over 1.8% per year. This translated into an outperformance of a whopping 223% over time, according to the WisdomTree report. The second quintile outperformed the S&P 500 by 1.6% per year.
Another study which takes into account the total equity returns of US stocks from 1802 to 2002 shows that dividends (plus real growth in dividends) accounted for fully 5.8% of the 7.9% total annualized returns in the period.
Investing in ETFs is becoming highly popular since ETFs provide a low-risk, low-cost way to get exposure to a wide variety of equities. There are various dividend ETFs that allow investors to generate steady income with low volatility. Young investors are flocking to these ETFs because of the downside protection they offer. According to a WSJ report, JPMorgan Equity Premium Income ETF lost just 3.5% in 2022, compared to a whopping 18% decline for the S&P 500 index. The ETF, which is also in our list of the best dividend ETFs in 2023, saw an inflow of $12.9 billion in 2022.
For this article we selected some of the most popular and safest dividend ETFs that provide exposure to high dividend stocks that have low volatility and strong dividend history. We also picked up some non-US dividend ETFs that allow investors to diversify their portfolios by having exposure to non-US companies. With each ETF we have mentioned its top holdings and hedge fund sentiment around them.
Best Dividend ETFs in 2023
10. Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD)
Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD) is based on the S&P 500 Low Volatility High Dividend Index (Index). Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD) gives exposure to dividend stocks that have relatively high yields and low volatility, just what investors in general are looking for these days when there’s hardly any certainty left in the financial markets. Some of the top holdings of Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD) include Altria Group, Inc. (NYSE:MO), Verizon Communications Inc. (NYSE:VZ), Kinder Morgan, Inc. (NYSE:KMI) and Dow Inc. (NYSE:DOW).
The biggest holding of Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD) is AT&T Inc. (NYSE:T). AT&T Inc. (NYSE:T) has a dividend yield of over 5%. As of the end of the fourth quarter of 2022, 55 hedge funds tracked by Insider Monkey had stakes in AT&T Inc. (NYSE:T). The biggest stakeholder of AT&T Inc. (NYSE:T) among these hedge funds was Cliff Asness’s AQR Capital Management which owns a $334 million stake in the company.
9. JPMorgan Equity Premium Income ETF (NYSE:JEPI)
JPMorgan Equity Premium Income ETF (NYSE:JEPI) generates monthly income by investing in large-cap, low-volatility dividend stocks. JPMorgan Equity Premium Income ETF (NYSE:JEPI) has an attractive 12-month rolling dividend yield of 11%. JPMorgan Equity Premium Income ETF (NYSE:JEPI)’s portfolio consists of 133 stocks. Some notable holdings of JPMorgan Equity Premium Income ETF (NYSE:JEPI) include AbbVie Inc. (NYSE:ABBV), PepsiCo, Inc. (NYSE:PEP), The Coca-Cola Company (NYSE:KO), Visa Inc. (NYSE:V) and Microsoft Corporation (NASDAQ:MSFT). JPMorgan Equity Premium Income ETF (NYSE:JEPI)’s second biggest holding, AbbVie Inc. (NYSE:ABBV), has increased its dividend consistently for several decades now and is also highly popular among the elite hedge funds tracked by Insider Monkey.
As of the end of the fourth quarter, 73 hedge funds had stakes in AbbVie Inc. (NYSE:ABBV). The biggest hedge fund stakeholder of AbbVie Inc. (NYSE:ABBV) was Cliff Asness’ AQR Capital Management which owns a $229 million stake in the company.
8. Fidelity US Quality Income ETF (LON:FUSD)
Fidelity US Quality Income ETF (LON:FUSD) tracks the Fidelity US Quality Income Index. Major tech companies account heavily for Fidelity US Quality Income ETF (LON:FUSD)’s portfolio. Some of the biggest holdings of Fidelity US Quality Income ETF (LON:FUSD) include Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and NVIDIA Corporation (NASDAQ:NVDA). Some other notable stocks in the portfolio famous for their dividends include The Procter & Gamble Company (NYSE:PG), Chevron Corporation (NYSE:CVX) and The Home Depot, Inc. (NYSE:HD).
Apple Inc. (NASDAQ:AAPL) is one of the best investments both for dividend and share price appreciation. It is one of the most favorite stocks of hedge funds too. Insider Monkey’s proprietary database of 943 hedge funds shows that 135 hedge funds had stakes in Apple Inc. (NASDAQ:AAPL). The biggest stakeholder of Apple Inc. (NASDAQ:AAPL) during this period was Warren Buffett’s Berkshire Hathaway which owns an $116 billion stake in the company.
ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) gives investors exposure to the select group of dividend stocks which have increased their dividends consistently for the last 25 years. These stocks are commonly known as dividend aristocrats. ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) claims to be the only ETF which exclusively focuses on The S&P 500 Dividend Aristocrats. ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) consists of 67 holdings. The top three stocks in ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL)’s portfolio are Albemarle Corporation (NYSE:ALB), Caterpillar Inc. (NYSE:CAT) and Chubb Limited (NYSE:CB).
Chemicals manufacturing company Albemarle Corporation (NYSE:ALB) has upped its dividends consistently for the last 27 years.
As of the end of the fourth quarter of 2022, 46 hedge funds had stakes in Albemarle Corporation (NYSE:ALB). The biggest hedge fund stakeholder of Albemarle Corporation (NYSE:ALB) was Ken Griffin’s Citadel Investment Group which owns an $115 million stake in the company.
6. SPDR Portfolio S&P 500 High Dividend ETF (NYSE:SPYD)
SPDR Portfolio S&P 500 High Dividend ETF (NYSE:SPYD) seeks to generate results that correspond to S&P® 500 High Dividend Index. SPDR Portfolio S&P 500 High Dividend ETF (NYSE:SPYD)’s portfolio consists of 79 stocks, most of which offer high dividend yields.
Some of the biggest holdings of SPDR Portfolio S&P 500 High Dividend ETF (NYSE:SPYD) include Paramount Global (NASDAQ:PARA), AbbVie Inc. (NYSE:ABBV) and Omnicom Group Inc. (NYSE:OMC). The biggest holding of SPDR Portfolio S&P 500 High Dividend ETF (NYSE:SPYD) is Packaging Corp Of America (NYSE:PKG), which has a dividend yield of over 3.4% as of April 12. UBS in February shared a screen of top 40 dividend stocks picked up by its machine learning model. UBS said that these stocks offer “greater downside protection, have stronger pricing power, trade at a 15-20% valuation discount vs the market and the payout ratio (45%) is 5 ppts below average implying upside to dividend growth." PKG made it to this list of stocks.
This screen of stocks, according to UBS, has outperformed by 5.5% over the past six months.
