Five Criteria to Select High Dividend Equity ETFs

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 |  Includes: BP, CVY, D, DEM, DTN, DUK, DVY, DWM, EWP, EWZ, EXC, IDU, IFGL, IGF, IXP, IYR, IYZ, PFF, PGF, PGX, PPH, PSP, RWX, SDY, UTH, VGK, VNQ, VPU, XLU
by: Hao Jin, CFA

In an environment where the 10-year Treasury yield is less than 3 percent, dividend stocks with long track records of consistent, growing payouts to shareholders are becoming quite attractive. However, the dividend payments of any single company might be cut or even disappear (just ask BP shareholders). ETFs offer a more stable income stream to income-hungry investors. But which dividend equity ETFs should you choose?

25 High Dividend Equity ETFs

I use the following 5 criteria to select ETFs from 1,068 ETFs traded in the U.S. Exchanges:

  1. Yield Greater than 3%.

  2. Net Assets over $200 million.

The following 25 Equity ETFs meet the above 2 criteria. They range from REITs, Utility, Telecom, Preferred, Health and Foreign stocks:

Fund Name (Ticker)

Yield

P/E

52 Wk High/Low Ratio

Vanguard Utilities ETF (NYSEARCA:VPU)

3.76%

12

1.15

iShares Dow Jones US Utilities (NYSEARCA:IDU)

3.79%

15

1.16

Utilities HOLDRs (NYSEARCA:UTH)

4.19%

12

1.20

iShares S&P U.S. Preferred Stock Index (NYSEARCA:PFF)

6.98%

-

1.23

PowerShares Preferred (NYSEARCA:PGX)

7.00%

-

1.23

SPDR S&P Dividend (NYSEARCA:SDY)

3.44%

13

1.24

Utilities Select Sector SPDR (NYSEARCA:XLU)

4.14%

11

1.25

PowerShares Financial Preferred (NYSEARCA:PGF)

7.62%

-

1.27

iShares Dow Jones US Telecom (NYSEARCA:IYZ)

3.64%

28

1.28

PowerShares Listed Private Equity (NYSEARCA:PSP)

4.02%

9

1.29

Pharmaceutical HOLDRs (NYSEARCA:PPH)

9.66%

11

1.30

WisdomTree Emer Mkts Equity Inc (NYSEARCA:DEM)

3.38%

9

1.31

SPDR Dow Jones Intl Real Estate (NYSEARCA:RWX)

3.94%

16

1.35

Vanguard European ETF (NYSEARCA:VGK)

4.18%

12

1.37

iShares MSCI Brazil Index (NYSEARCA:EWZ)

3.66%

20

1.42

iShares FTSE Dev RE ex-US (NASDAQ:IFGL)

8.27%

17

1.43

iShares Dow Jones US Real Estate (NYSEARCA:IYR)

3.50%

44

1.46

Vanguard REIT Index ETF (NYSEARCA:VNQ)

3.60%

42

1.49

iShares S&P Global Infrastructure (NYSEARCA:IGF)

3.57%

17

1.64

Claymore/Zacks Multi-Asset Income (NYSEARCA:CVY)

5.03%

13

1.65

iShares MSCI Spain Index (NYSEARCA:EWP)

5.74%

12

1.76

iShares Dow Jones Select Dividend (NYSEARCA:DVY)

3.67%

16

2.55

iShares S&P Global Telecom (NYSEARCA:IXP)

4.44%

18

2.87

WisdomTree DEFA (NYSEARCA:DWM)

4.70%

11

2.89

WisdomTree Dividend ex-Financials (NYSEARCA:DTN)

3.91%

13

3.40

Click to enlarge

3. Low Volatility: the above list is sorted by the 52-week high/low ratio. The lower, the less volatile. For example, over the last 12 months, Vanguard Utilities ETF (VPU) was traded between $58 - $67 ranges.

4. Long History of Dividends: the longer the better.

5. Current Price above 200-Day Moving Average.

Utilities Select Sector SPDR (XLU)

Out of the top 7 ETFs in the list above, 4 are utility ETFs. The utility sector offers decent dividends and carries a relatively high degree of safety. This sector has a reliable earnings stream, even in times of uncertainty because people cannot live without the services it offers.

The Utilities Select Sector SPDR consists of companies involved in water and electrical power and natural gas distribution industries. Component companies include Duke Energy (NYSE:DUK), Excelon (NYSE:EXC), and Dominion Resources (NYSE:D). It’s the largest utility ETF with net assets over $3.8 billion. The following chart shows its 10 years’ dividend history:

click to enlarge

Click to enlarge

Higher electric demand, stabilizing natural gas prices and low interest rates put XLU's price above its 200 day MA, as shown in the following chart from Yahoo.com:

Click to enlarge

Conclusion

In a time when uncertainty is taking the stock market on a rollercoaster ride and might remain so for years, investors scramble for income: they need to be paid while waiting. Low yields on bonds also pushed individual investors toward dividend-paying stocks.

Depending on each investor’s preference and risk tolerance, current market volatility and economic uncertainty provide an opportunity for income and value investors to purchase various beaten-down stock ETFs with stable dividends.

Data is from iShares.com and Yahoo Finance and is valid as of September 5, 2010.

Disclosure: Long XLU