In this article, we discuss the 10 dividend ETFs to buy now. If you want to skip our detailed analysis of these ETFs, go directly to the 5 Dividend ETFs to Buy Now.
Value investors have long professed that the true value of a company lies in the ability it has to return profits to shareholders. These investors, who like investments in dividend stocks, also believe that regular cash inflows are important for the smooth running of any business. In the incredible hullabaloo around growth stocks over the past few years, these investors have been pushed to the periphery. However, it is interesting that even though value investors are not in the spotlight, the net inflows into dividend ETFs have increased.
Perhaps some of this has to do with inflation fears, but there is something more to the story as well. According to data compiled by Morningstar, a financial services company, and reported by news publication The Wall Street Journal, the net inflows into dividend ETFs at the end July this year were $25 billion, a huge jump from $1.8 billion worth of net inflows into the sector at the end of July 2020. This indicates that at the height of the virus crisis in 2020, dividend ETFs were not a particularly powerful investing vehicle.
Certainly, one reason why dividend ETFs struggled during 2020 was that many companies were forced to halt dividend payments as they battled the closure of business. As the economy reopened at the turn of the year, these firms resumed dividend payouts. Thus, so did investments in dividend ETFs. Data from Dow Jones Indices indicates that between June and September this year, there were 568 common dividend increases reported by companies on the S&P 500, up 130% year-on-year.
Investors who are eager to jump on the dividend gravy train as the economy jumps full steam ahead should follow the smart money. Some of the top holdings of the dividend ETFs presently include Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), and The Home Depot, Inc. (NYSE:HD), among others discussed in detail below. As inflation fears increase, even hedge funds have started to balance the risk in their portfolios that have grown growth-heavy in the past few months.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Our Methodology
Here is our list of the 10 dividend ETFs to buy now. The aim of the article is to provide readers with a basic rundown of some of the top dividend ETFs in the US. All the ETFs listed below trade on exchanges in the United States.
Photo by Nathan Dumlao on Unsplash
Dividend ETFs to Buy Now
10. Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY)
Net Assets: $956 million
Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY) is an exchange traded fund that tracks the investment returns of the NASDAQ US Dividend AchieversTM 50 Index which comprises a group of companies that have a consistent record of dividend increases.
One of the top holdings of the Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY) is Altria Group, Inc. (NYSE:MO), a company that makes and sells tobacco products and wine.
At the end of the second quarter of 2021, 47 hedge funds in the database of Insider Monkey held stakes worth $948 million in Altria Group, Inc. (NYSE:MO), up from 38 in the previous quarter worth $1.1 billion.
Just like Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), and The Home Depot, Inc. (NYSE:HD), Altria Group, Inc. (NYSE:MO) is one of the stocks that elite investors are buying.
In its Q2 2021 investor letter, Broyhill Asset Management, an asset management firm, highlighted a few stocks and Altria Group, Inc. (NYSE:MO) was one of them. Here is what the fund said:
“Altria (MO) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 20%. We shared our thoughts on these regulations during the quarter, which are available here.
MO Valuation. MO is up ~ 18% YTD (even accounting for the recent sell-off). We expect MO to generate close to $5 in annual FCF per share over the next few years, putting the stock at ~ 10x, which is less than half the market’s multiple today. Over the last decade, shares have traded at an average multiple of 15x and within a range of ~ 10x – 20x (+/-1 standard deviation). The stock yields 7.2% at the current price, close to a 6% premium to treasuries. Historically, shares have traded closer to a 3% premium to the 10Y, which would imply a ~ $75 share price.”
9. FlexShares Quality Dividend Index Fund (NYSE:QDF)
Net Assets: $1.5 billion
FlexShares Quality Dividend Index Fund (NYSE:QDF) is an exchange traded fund that tracks the investment returns of the Northern Trust Quality Dividend Index which comprises a group of large and mid-sized companies in the US with relative financial stability compared to the Northern Trust 1250 Index.
FlexShares Quality Dividend Index Fund (NYSE:QDF) holds a large stake in Cisco Systems, Inc. (NASDAQ:CSCO), a firm that markets networking products for the communications and information technology industry.
At the end of the second quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $4.2 billion in Cisco Systems, Inc. (NASDAQ:CSCO), up from 59 in the previous quarter worth $5.1 billion.
8. WisdomTree U.S. MidCap Dividend Fund (NYSE:DON)
Net Assets: $3 billion
WisdomTree U.S. MidCap Dividend Fund (NYSE:DON) is an exchange traded fund that tracks the investment returns of the WisdomTree US MidCap Dividend Index which comprises a group of mid-sized, dividend-paying stocks trading in the US.
A top holding of the WisdomTree U.S. MidCap Dividend Fund (NYSE:DON) is Fidelity National Financial, Inc. (NYSE:FNF), a Florida-based business that provides various types of insurance products across the United States.
Among the hedge funds being tracked by Insider Monkey, Houston-based investment firm Windacre Partnership is a leading shareholder in Fidelity National Financial, Inc. (NYSE:FNF) with 10.8 million shares worth more than $470 million.
In its Q1 2021 investor letter, Merion Road Capital Management, an asset management firm, highlighted a few stocks and Fidelity National Financial, Inc. (NYSE:FNF) was one of them. Here is what the fund said:
“During the period I added to our position in Fidelity National Financial (“FNF”). FNF is the nation’s largest title insurer with 33% market share. It was built over the last 30 years by Bill Foley, who revolutionized the industry with his emphasis on eliminating bureaucracy, utilizing technology to streamline operations, and maximizing customer service. He is well-regarded as a savvy investor and consummate deal-maker having acquired and divested multiple entities both in title and ancillary fields. He continues to serve as the chairman of FNF with a personal stake in the company worth hundreds of millions.
While title insurance is technically insurance, it is a bit of a unique animal. Being that the insurer writes a policy based on past events, not unknowns in the future, losses are relatively small and predictable. The more data an insurer can analyze, the less likely they are to experience a claim; and the more efficiently they can analyze the data and process the application, the lower their costs will be. FNF has invested in automating its work stream through their ownership of NextAce (automated search), SoftPro (document production and closing), and multiple other cloud-based platforms. Due to these investments, FNF boasts industry leading margins and is able to attract more third party agents who can leverage their service offering.
Last year FNF acquired the outstanding interest in FGL Holdings (“F&G”), a fixed indexed and fixed rate annuity provider. Though this appears to be a financial rather than strategic acquisition, there should be some opportunities to grow the combined business. Notably, the acquisition afforded F&G an improved credit profile which has led to ratings upgrades. These upgrades allow F&G to address new distribution lines, such as in the bank market where FNF has strong relationships through their title and escrow business. The company announced that since launching in July 1st it had already achieved $500mm of sales in this channel (vs. full year sales of ~$4bn).
FNF is likely over-earning right now based on the recent spike in mortgage activity. Looking out to 2022 I estimate that earnings should step down to something a little shy of $5.00/sh. At current prices we are collecting a double digit earnings yield for a business with strong market positioning and a superb capital allocator. Last year they repurchased a bunch of stock in Q1 at depressed prices and have announced their intent to acquire another $500mm over the next 12 months.”
7. iShares International Select Dividend ETF (BATS:IDV)
Net Assets: $4 billion
iShares International Select Dividend ETF (BATS:IDV) is an exchange traded fund that tracks the investment returns of the Dow Jones EPAC Select Dividend Index which comprises a group of high-yield dividend stocks in non-US developed markets.
iShares International Select Dividend ETF (BATS:IDV) holds a large stake in Rio Tinto Group (NYSE:RIO), a corporation that operates in the diversified metals and mining industry with core interests in the mining of aluminum, copper, diamonds, and gold.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in Rio Tinto Group (NYSE:RIO) with 1.8 million shares worth more than $156 million.
6. ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL)
Net Assets: $8 billion
ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) is an exchange traded fund that tracks the investment returns of the S&P 500 Dividend Aristocrats Index which measures the performance of high yield dividend stocks in the US.
One of the premier holdings of the ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) is Exxon Mobil Corporation (NYSE:XOM), an organization that has interests in the oil and gas business.
At the end of the second quarter of 2021, 68 hedge funds in the database of Insider Monkey held stakes worth $3.6 billion in Exxon Mobil Corporation (NYSE:XOM), up from 65 in the preceding quarter worth $2.7 billion.
In addition to Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), and The Home Depot, Inc. (NYSE:HD), Exxon Mobil Corporation (NYSE:XOM) is one of the stocks that elite investors are buying.
In its Q1 2021 investor letter, Harding Loevner highlighted a few stocks and Exxon Mobil Corporation (NYSE:XOM) was one of them. Here is what the fund said:
“We felt that our remaining energy holding, ExxonMobil, with its stronger balance sheet, was in a better position to ride out the cyclical slump in oil demand and even perhaps take advantage of it by investing counter-cyclically. While ExxonMobil does plan to increase capital expenditure, we’ve been disappointed in its regrettable failure to address ongoing emission trends, which reflects poorly on management’s foresight. As a result, we sold our ExxonMobil holdings.”
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Disclosure. None. 10 Dividend ETFs to Buy Now is originally published on Insider Monkey.