Investors looking to increase their exposure to dividend stocks and ETFs have a multitude of funds from which to choose. The following three ETFs stand out as potential candidates based on their diversification, blue chip names, and solid dividend yields.
SPDR S&P Dividend ETF (SDY)
The S&P Dividend ETF is based on the S&P High Yield Dividend Aristocrats Index. The Index takes the S&P 1500 stock index and chooses the 60 highest yielding stocks that have increased their dividends in each of the last 25 years.
Concentration risk is limited with the largest holding accounting for just 3.90% of the index with the top five holdings accounting for just 18% of the ETF as of January 23rd, 2012.
- Pitney Bowes (X) - 3.98%
- AT&T (T) - 3.36%
- Cincinnati Financial Corp. - 3.21%
- Hcp Inc. - 2.86%
- Leggett & Platt Inc - 2.77%
Sector exposure is just as diverse with the two largest allocations being financials comprising 19.47% and consumer staples comprising 18.45% of the Index. The financials allocation does not include any of the major money center problem banks and is primarily split between regional banks and insurance firms.
The Gross Expense Ratio is just 0.35% while the 30 Day SEC Yield hovers around 3.19%, giving investors a strong dividend yield.
iShares Dow Jones Select Dividend Index Fund (DVY)
The iShares Dow Jones Select Dividend Index Fund is comprised of 100 stocks selected by dividend yield, growth rate, payout ratio and trading volume.
The top holdings are well diversified with the top five comprising just 12% of the entire index as of December 30, 2011:
- Lorillard Inc. (LO) - 3.34%
- Lockheed Martin Corp. (LMT) - 2.76%
- Entergy Corp. (ETR) - 2.15%
- Chevron Corp. (CVX) - 2.11%
- CenturyLink Inc. (CTL) - 1.94%
Sector exposure is a bit concentrated with utilities comprising 31.37% of the fund while consumer goods comprise 17.93%, but fundamentally the portfolio is solid with the underlying stocks trading at an average P/E ratio of 14.76 and a dividend yield of 4.06%.
WisdomTree Total Dividend Fund (DTD)
The final ETF is the WisdomTree Total Dividend Fund which is based off the WisdomTree Dividend Index. The index is comprised of companies which pay regular dividends and meet other liquidity and market capitalization requirements.
Again, there is solid diversification among holdings as seen below:
- AT&T Inc - 3.51%
- Exxon Mobil Corp (XOM) - 3.24%
- Microsoft Corp. (MSFT) - 2.53%
- General Electric (GE) - 2.33%
- Chevron Corp. - 2.25%
The top five comprise roughly 13.5% of the index as of January 20th, 2012 with financials and consumer staples comprising 16.54% and 14.68% of the Index, respectively.
The SEC 30 day yield is 3.02% with an expense ratio of 0.28%.
My greatest concern is that the fund is too large at over 900 holdings with only the top 20 comprising more than 1% of the ETF on an individual basis.
Investors seeking to add exposure to dividends through ETFs would be well advised to give the three ETFs a closer look as they are diversified, offer low expense ratios, and dividend ratios of more than 3% each.