The Top Dividend Paying ETFs and Stocks

I like the idea of letting money work for me on its own. One way to do that is buying equities that generate dividends. Last year, about 10% of our gains were from dividends, capital gains, and interests. Since long-term qualified dividends are taxed at a much lower rate (at most 15%) than short-term capital gains and interest, it makes sense to add them to our portfolio, even outside the tax deferred accounts.

To begin this topic, let’s see what dividend is. According to Investopedia, dividend is

Distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (i.e. dividends per share or DPS). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.

To invest in companies that pay dividends, we can choose either to buy individual stocks, or purchase a mutual fund or ETF that invest in dividend-paying companies. Here, I will only look at ETFs with the main objective as generating incomes from dividend distributions. Using Morningstar’s ETF tool, I found the following 12 dividend-paying ETFs that invest in domestic companies.

The top 10 holdings of the 12 dividend-paying ETFs are listed as follows (with annual dividend payout amount and yield). The reason I look at the individual stocks of each ETF are 1) to get a sense of the yield of the ETF that hold them could be when such data is not available (for those WisdomTree ETFS in particular), 2) see how much these ETFs overlap, and, 3) most importantly, to identify which stocks these ETFs are using to generate dividends so I can use them for my own purpose.

iShares Dow Jones Select Dividend Index (DVY)

1. Altria Group (MO) — $3.44 (5.00%)
2. FPL Group (FPL) — $1.64 (2.60%)
3. FirstEnergy (FE) — $2.00 (2.90%)
4. Bank of America (BAC) — $2.24 (4.40%)
5. Merck (MRK) — $1.52 (2.90%)
6. DTE Energy (DTE) — $2.12 (4.10%)
7. PNC Financial Services Group (PNC) — $2.52 (3.30%)
8. Pinnacle West Capital (PNW) — $2.10 (4.30%)
9. AT&T (T) — $1.42 (3.60%)
10. Regions Financial (RF) — $1.44 (4.00%)

PowerShares HighYield Dividend Achievers (PEY)

1. First Commonwealth Financial (FCF) — $0.68 (6.00%)
2. FirstMerit (FMER) — $1.16 (5.30%)
3. Corus Bankshares (CORS) — $1.00 (6.10%)
4. F.N.B. (FNB) — $0.94 (5.50%)
5. Washington Mutual (WM) — $2.20 (5.10%)
6. Progress Energy (PGN) — $2.44 (4.70%)
7. Old National Bancorp (OND) — $0.88 (4.80%)
8. Pfizer (PFE) — $1.16 (4.30%)
9. U.S. Bancorp (USB) — $1.60 (4.60%)
10. Consolidated Edison (ED) — $2.32 (4.50%)

PowerShares Dividend Achievers (PFM)

1. General Electric (GE) — $1.12 (3.00%)
2. Exxon Mobil (XOM) — $1.40 (1.70%)
3. Citigroup (C) — $2.16 (4.00%)
4. AT&T (T) — $1.42 (3.60%)
5. Bank of America (BAC) — $2.24 (4.40%)
6. Wal-Mart Stores (WMT) — $0.88 (1.80%)
7. Procter & Gamble (PG) — $1.40 (2.30%)
8. Pfizer (PFE) — $1.16 (4.30%)
9. American International Group (AIG) — $0.66 (1.00%)
10. Johnson & Johnson (JNJ) — $1.66 (2.60%)

First Trust Value Line Dividend Index (FVD)

1. Northwest Natural Gas (NWN) — $1.42 (2.70%)
2. Interactive Data (IDC) — $0.50 (1.70%)
3. Snap-On (SNA) — $1.08 (2.00%)
4. Honeywell International (HON) — $1.00 (1.80%)
5. Masco (MAS) — $0.92 (3.00%)
6. 3M (MMM) — $1.92 (2.30%)
7. XL Capital (XL) — $1.52 (1.90%)
8. General Electric (GE) — $1.12 (3.00%)
9. New Jersey Resources (NJR) — $1.52 (2.80%)
10. The New York Times (Class A) (NYT) — $0.92 (3.60%)

WisdomTree LargeCap Dividend Fund (DLN)

1. General Electric (GE) — $1.12 (3.00%)
2. Citigroup (C) — $2.16 (4.00%)
3. Bank of America (BAC) — $2.24 (4.40%)
4. AT&T (T) — $1.42 (3.60%)
5. Exxon Mobil (XOM) — $1.40 (1.70%)
6. Pfizer (PFE) — $1.16 (4.30%)
7. Altria group (MO) — $3.44 (5.00%)
8. Verizon Communications (VZ) — $1.62 (4.00%)
9. JPMorgan Chase (JPM) — $1.52 (2.90%)
10. Chevron (CVX) — $2.32 (3.00%)

WisdomTree Dividend Top 100 (DTN)

1. Southern Copper (PCU) — $6.00 (7.00%)
2. AT&T (T) — $1.42 (3.60%)
3. Bristol-Myers Squibb (BMY) — $1.12 (3.70%)
4. Embarq (EQ) — $2.50 (3.90%)
5. Southern Company (SO) — $1.61 (4.30%)
6. Progress Energy (PGN) — $2.44 (4.70%)
7. Verizon Communications (VZ) — $1.62 (4.00%)
8. Consolidated Edison (ED) — $2.32 (4.50%)
9. Mattel (MAT) — $0.65 (2.30%)
10. DTE Energy (DTE) — $2.12 (4.10%)

WisdomTree SmallCap Dividend (DES)

1. Lexington Corporate Properties Trust (LXP) — $1.50 (7.10%)
2. Spirit Finance (SFC) — $0.88 (6.10%)
3. Regal Entertainment (RGC) — $1.20 (5.50%)
4. Penn Real Estate Invest Trust — N/A
5. American Financial Realty Trust (AFR) — $0.76 (7.00%)
6. MCG Capital (MCGC) — $1.76 (10.00%)
7. Vector group (VGR) — $1.60 (8.70%)
8. Deluxe (DLX) — $1.00 (2.50%)
9. National Retail Properties (NNN) — $1.42 (5.90%)
10. Sunstone Hotel (SHO) — $1.28 (4.40%)

WisdomTree Total Dividend (DTD)

1. General Electric (GE) — $1.12 (3.00%)
2. Citigroup (C) — $2.16 (4.00%)
3. Bank of America (BAC) — $2.24 (4.40%)
4. AT&T (T) — $1.42 (3.60%)
5. Exxon Mobil (XOM) — $1.40 (1.70%)
6. Pfizer (PFE) — $1.16 (4.30%)
7. Altria Group (MO) — $3.44 (5.00%)
8. Verizon Communications (MO) — $3.44 (5.00%)
9. JPMorgan Chase (JPM) — $1.52 (2.90%)
10. Chevron (CVX) — $2.32 (3.00%)

WisdomTree MidCap Dividend (DON)

1. American Capital Strategi (ACAS) — $3.56 (7.50%)
2. Windstream (WIN) — $1.00 (6.60%)
3. Istar Financial (SFI) — $3.30 (7.00%)
4. Allied Capital (ALD) — $2.56 (8.60%)
5. Citizens Comm (CZWI) — $0.20 (2.10%)
6. Thornburg Mortgage (TMA) — $2.72 (10.00%)
7. Health Care Property (HCP) — $1.78 (5.20%)
8. Keyspan (KSE) — $1.90 (4.60%)
9. New York Community Bancorp (NYB) — $1.00 (5.70%)
10. Plum Creek Timber (PLC) — $1.68 (4.20%)

SPDR S&P Dividend (SDY)

1. Consolidated Edison (ED) — $2.32 (4.50%)
2. Pfizer (PFE) — $1.16 (4.30%)
3. WGL ldgs (WGL) — $1.37 (4.00%)
4. Vectren (VVC) — $1.26 (4.40%)
5. Integrys Energy Group (TGE) — $2.64 (4.40%)
6. Bank of America (BAC) — $2.24 (4.40%)
7. Comerica (CMA) — $2.56 (4.10%)
8. Black Hills (BKH) — $1.36 (3.40%)
9. Altria Group Inc (MO) — $3.44 (5.00%)
10. U.S. Bancorp (USB) — $1.60 (4.60%)

Vanguard Dividend Appreciation ETF (VIG)

1. Chevron (CVX) — $2.32 (3.00%)
2. ExxonMobil (XOM) — $1.40 (1.70%)
3. Wal-Mart Stores (WMT) — $0.88 (1.80%)
4. American International Group (AIG) — $0.66 (1.00%)
5. General Electric (GE) — $1.12 (3.00%)
6. Procter & Gamble (PG) — $1.40 (2.30%)
7. International Business Machines (IBM) — $1.60 (1.60%)
8. Johnson & Johnson (JNJ) — $1.66 (2.60%)
9. Coca-Cola (CO) — $1.36 (2.60%)
10. PepsiCo (PEP) — $1.20 (1.80%)

Vanguard High Dividend Yield Index ETF (VYM)

1. ExxonMobil (XOM) — $1.40 (1.70%)
2. General Electric (GE) — $1.12 (3.00%)
3. Citigroup (C) — $2.16 (4.00%)
4. AT&T (T) — $1.42 (3.60%)
5. Bank of America (BAC) — $2.24 (4.40%)
6. Procter & Gamble (PG) — $1.40 (2.30%)
7. Altria Group (MO) — $3.44 (5.00%)
8. Pfizer (PFE) — $1.16 (4.30%)
9. Johnson & Johnson (JNJ) — $1.66 (2.60%)
10. JPMorgan Chase (JPM) — $1.52 (2.90%)

What these top 10 holdings tell me is that there are indeed quite some overlaps among funds. For example, Vanguard High Dividend Yield Index ETF (VYM) and PowerShares Dividend Achievers (PFM) have 8 stocks in common in their respective top 10 lists, and they both look like WisdomTree Total Dividend (DTD). However, despite the similarity, VYM holds the edge against PFM in both costs (0.25% vs. 0.67%) and yield (2.90% vs. 1.79%). If you would choose a dividend ETF, then VYM seems to be a better than PFM.

Now, with the above mentioned dividend-paying stocks, I think I can actually build my own dividend generating portfolios if I choose not to use the existing funds. To do this, I have three options:

Use stocks that are mostly used in the dividend-paying ETFs

Use stocks that have the highest dividend yield

Use stocks that pay the most dividends in dollar amount

And the three lists are:

10 mostly used dividend-paying stocks

1. Altria Group (MO) — $3.44 (5.00%)
2. Bank of America (BAC) — $2.24 (4.40%)
3. Pfizer (PFE) — $1.16 (4.30%)
4. Verizon Communications (VZ) — $1.62 (4.00%)
5. Citigroup (C) — $2.16 (4.00%)
6. AT&T (T) — $1.42 (3.60%)
7. Chevron (CVX) — $2.32 (3.00%)
8. General Electric (GE) — $1.12 (3.00%)
9. JPMorgan Chase (JPM) — $1.52 (2.90%)
10. Exxon Mobil (XOM) — $1.40 (1.70%)

10 highest yield dividend-paying stocks

1. MCG Capital (MCGC) — $1.76 (10.00%)
2. Thornburg Mortgage (TMA) — $2.72 (10.00%)
3. Vector group (VGR) — $1.60 (8.70%)
4. Allied Capital (ALD) — $2.56 (8.60%)
5. American Capital Strategi (ACAS) — $3.56 (7.50%)
6. Lexington Corporate Properties Trust (LXP) — $1.50 (7.10%)
7. American Financial Realty Trust (AFR) — $0.76 (7.00%)
8. Istar Financial (SFI) — $3.30 (7.00%)
9. Southern Copper (PCU) — $6.00 (7.00%)
10. Corus Bankshares Inc. — $1.00 (6.10%)

10 highest payout dividend-paying stocks

1. Southern Copper (PCU) — $6.00 (7.00%)
2. American Capital Strategi (ACAS) — $3.56 (7.50%)
3. Altria Group, Inc. (MO) — $3.44 (5.00%)
4. Istar Financial (SFI) — $3.30 (7.00%)
5. Thornburg Mortgage (TMA) — $2.72 (10.00%)
6. Integrys Energy Group (TGE) — $2.64 (4.40%)
7. Comerica (CMA) — $2.56 (4.10%)
8. PNC Financial Services Group (PNC) — $2.52 (3.30%)
9. Embarq (EQ) — $2.50 (3.90%)
10. Progress Energy (PGN) — $2.44 (4.70%)

I currently have several dividend generators: PEY, PFM, PID, ADVDX, BAC, PG, and PGN (BAC, PG, and PGN are purchases through DRIP programs). I am considering adding MO to my list because after their recent special dividend of $21.91 on April 2, the stock is much more affordable to me. Besides, I am also looking to replace the PowerShares ETFs with Vanguard ETF.

Comments

[CARMEL]

EXCELLENT ARTICLE. TWO SUGGESTIONS:
1) SHOW RATIO OF DIVIDENDS TO EEP OR FFO
2) WHAT ABOUT PREFFEREDS? OPP,SD

[pjindent]

Couple of ratios that may add value is
a) payout ratio: how much earning is being paid out as dividend. Some of the companies have payout ratio of >100%, which is unsustainable.
b) dividend growth rate. I am more interested in consistent dividend versus, for instance, dividend that goes up or down based on commodity prices

[Frank Emery]

Some thinking needs to be done about the nature of the companies and the type of diversification that you want. For instance, utilities, banks or financial companies, conglomerates, industrials, energy, etc. What about U.S. companies versus international companies?

[Frank Li]

3 reasons to question the assumption here that high dividend yielding stocks or ETFs must be good:

1. As Joe comments above, there's no discussion of dividend coverage.

2. The theoretical case for dividends is weak. See Why Dividend Paying Stocks Are a Mistake.

3. There's no discussion of the expense ratios of the ETFs -- even though the expenses are deducted from the dividends, and therefore lead to higher risk or lower growth for a given level of dividends.

[bigjohn_hk]

Could you tell me, pls, why you are dissatisfied with PowerShares and are replacing them with Vanguard. I also own the same Powershare Divd. ETFs. Thanks

[Sun]

Hi everybody:

Thanks for the suggestions. I will look at some of ratios to add to the article. Also, for individual stocks, dividend growth rate is quite important in evaluating a stock's long-term performance in terms of dividend payout. However, due to limited resources, I am not sure if I can find all the information I need or not, but I will try. Actually, the initial purpose of the article was to compare the performance of dividend paying ETFs and see how much they are different from each other.

Frank Emery: Yes, companies in the financial, utility and real estate sectors usually pay higher dividends. I will take a look at international dividend ETFs later.

Frank Li: The ER column has the expense ratio of each ETF.

bigjohn_hk: The main reason I am considering replacing Powershares ETFs with Vanguard ETFs is cost. Vanguard ETFs have much lower ER then Powershares ETFs and with a higher yield as well.

Sun

[sunrises]

Hello. Is there an Emerging Market ETF that has included Alibaba.com ipo there holdings? Or, is there a new ETF which includes alibaba.com for those who cannot purshares the shares for quite some time?

[RVER]

I,m investing money I can not replace. I am 82 and need a income to keep up and cover riseing cost of living. Safety is a concern. Can you consider the S&P ratings also . Thanks ..... RVER