Dividend exchange traded funds (ETFs) have become an increasingly popular investment tool for those seeking passive income and liquidity.
Below, Finbold has highlighted some of the best dividend ETFs worth considering in the current market environment.
1. Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF (VYM) tracks the FTSE High Dividend Yield Index, which starts with a broad universe of U.S. dividend-paying companies.
Therefore, we estimate the expected dividend yield for each stock over the next year, and the top half of the yield is included in the portfolio. The current yield is approximately 2.3%.
This strategy is not particularly aggressive in terms of income. Its main advantage lies in its simple approach designed to earn above-average yields without taking on undue risk.
Additionally, with over 500 holdings, this dividend ETF minimizes concentration risk and has a low expense ratio of 0.04%, making it one of the cheapest in its category.
2. Fidelity Global Quality Income UCITS ETF (FGQD)
The Fidelity Global Quality Income UCITS ETF (FGQD) seeks to replicate the performance of the Fidelity Global Quality Income Index. Therefore, this index targets large- and mid-cap dividend companies. The current yield is 2.14%.
Metrics such as free cash flow margin, return on invested capital, and free cash flow stability are all evaluated to identify the best stocks. The ultimate goal is to identify stocks that can maintain and grow their dividends over the long term, and only those with the highest yields are included.
FGQD delivers a total expense ratio (TER) of 0.40% per year, and its so-called full replication strategy ensures that all underlying components of the index are retained to closely reflect performance. Dividends generated by the Portfolio are distributed to investors on a quarterly basis.
3. JPMorgan Equity Premium Income ETF (JEPI)
Our third choice, the JPMorgan Equity Premium Income ETF (JEPI), takes a slightly different approach. In other words, rather than simply holding high-yield stocks, the fund has constructed a portfolio of more than 100 low-volatility stocks with relatively attractive risk/return characteristics. Currently, this strategy yields around 7%.
As part of a covered call strategy, a portion of the potential stock price appreciation is traded in exchange for option premium income. As a result, JEPI will appeal to investors primarily focused on generating stable cash flow, rather than those seeking a combination of growth and profit.
Similarly, dividend funds tend to be backed by solid fundamentals and more recession-proof because their holdings have lower volatility. Therefore, while its risk/return profile is different from traditional dividend ETFs, that difference actually works to its advantage, making it a useful diversification tool.
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