US Market Cap, Dividend-Weighted ETFs List
(click on symbol for data and articles)
What Are They?
- Dividend ETFs track indexes in which stocks are weighted by their dividend payments. Some of these ETFs also take account of the dividend yield (the percentage of the stock's market cap paid out as a dividend each year), whether the dividend has been sustained or risen over time, and for how long the stock has paid a dividend.
- US Market Cap, Dividend-Weighted ETFs allow investors to cover dividend-paying stocks specifically for US small cap, mid cap or large cap stocks.
Why & How To Use Them
- Proponents of dividend-paying stocks argue that they have outperformed the broad market in the long-term (see Further Reading below). Income-oriented investors, for example those in retirement, may also want to raise the income yield of their portfolios.
- Splitting a dividend-generating portfolio into small, mid and large cap stocks allows investors to ensure that all these groups are represented, irrespective of whether one market cap group generally pays higher dividends than another.
- If you accept the case for dividend-paying stocks, there are two ways to use these ETFs: (1) Build a portfolio entirely from dividend-paying stocks, for example using the WisdomTree ETFs. (2) Construct a portfolio tilted to dividend-paying stocks by adding one or more of these ETFs to a portfolio of broad index ETFs.
What to Look Out For
- Compared to broader index ETFs, dividend-paying ETFs tend to have higher expense ratios and wider buy-sell spreads (which makes them more costly to buy and sell). Since the higher fees come out of the dividends paid, that reduces some of the extra yield.
- While dividend-paying stocks have a good track record, the theoretical case for them is controversial. All else being equal, dividend-paying stocks should be less desirable than stocks of companies that buy back stock if the investor pays the same taxes on dividends as on long term capital gains.
- The case for dividend-paying stocks is outlined in this interview with Luciano Siracusano, Director of Research for ETF Firm WisdomTree Asset Management. It also contains useful discussion of WisdomTree's ETFs.
- Accounting for Leverage with High Dividend Strategies discusses construction and evaluation of income generating portfolios.
- The theoretical case against dividend-paying stocks is outlined in Why Dividend Paying Stocks are a Mistake, and an argument for using a small cluster of individual stocks instead of ETFs is made in High Dividend ETFs: Who Needs 'Em?.
- Dividend-weighted ETFs include: Broad US Dividend ETFs, International Dividend ETFs and US Market Cap/Dividend ETFs.
This page is part of The Seeking Alpha ETF Selector which sorts ETFs by type, highlights how to use them and what to look out for, and provides links to articles that discuss key issues for investors.