Best dividend ETF for the first quarter of 2022

Dividend exchange-traded funds (ETFs) are designed to invest in a basket of stocks that pay dividends. Stable and attractive dividends are often associated with larger, lower-risk blue chip companies, although any company can share profits with shareholders, and some of the highest-yielding companies are smaller and less well-known companies. Many ETFs operating in this field tend to have stable income and room for growth. However, others may pursue higher and possibly less secure dividend payments in the hope that this generosity is sustainable and will not harm the company’s finances or future growth prospects.

Key points

  • Over the past year, the performance of dividend ETFs has lagged behind the broader U.S. market.
  • The dividend ETFs with the best one-year tracking total return are KBWD, CSB, and SDVY.
  • The largest holdings of these ETFs are Orchid Island Capital Inc., Otter Tail Corp. and Boise Cascade Co. respectively.

Dividend ETFs are generally favored by more investors who avoid risks and seek income. Investors also use them to balance the riskier investments in their portfolio. In addition to providing regular income streams, these ETFs generally provide a much lower management expense ratio (MER) than dividend-focused mutual funds.

There are 91 dividend smart beta ETFs traded in the United States, excluding inverse and leveraged ETFs and funds with assets under management (AUM) of less than US$50 million. Dividend stocks measured by the benchmark S&P 500 Dividend Aristocratic Index have underperformed the market in the past year. The index’s 1-year tracking total return is 25.3%, compared to 32.1% for the S&P 500. Based on the performance of the past year, the best-performing dividend ETF is Invesco KBW High Dividend Yield Financial ETF (KBWD). We reviewed the top three best dividend ETFs below. All figures are as of November 11, 2021.

  • Performance over one year: 53.4%
  • Expense rate: 1.24%
  • Annual dividend yield: 6.74%
  • Three-month average daily volume: 150,445
  • Assets under management: US$514.7 million
  • Date of establishment: December 2, 2010
  • Issuer: Invesco

KBWD tracks the KBW Nasdaq Financial Sector Dividend Yield Index, which is a revised dividend yield-weighted index. Its main business is companies that provide financial services and products. ETFs provide risk exposure to banks and other financial institutions that pay dividends. Although it invests in growth stocks and value stocks across the entire market capitalization range, most of the stocks it holds are small-cap value stocks. This makes KBWD a somewhat risky bet because many of the securities that make up its portfolio are issued by companies that are not financially stable. Therefore, the fund is more suitable for investors with high risk tolerance.

KBWD’s top three holdings include Orchid Island Capital Inc. (ORC), a professional financial company that uses leverage to invest in residential mortgage-backed securities (MBS); Newtek Business Services Corp. (NEWT), a regulated company The management investment company of a business development company; ARMOR Residential REIT Inc. (ARR), a real estate investment trust (REIT) that manages a leveraged portfolio of mortgage-backed securities and related products.

  • Performance over one year: 47.4%
  • Expense rate: 0.35%
  • Annual dividend yield: 3.06%
  • Three-month average daily volume: 24,212
  • Assets under management: US$250 million
  • Date of establishment: July 8, 2015
  • Publisher: Crestview

CSB tracks the NASDAQ Victory US Small Cap High Dividend 100 Volatility Weighted Index, which measures the performance of the top 100 dividend yield stocks in the broader Nasdaq Victory US Small Cap 500 Volatility Weighted Index. ETFs provide exposure to some of the small-cap stocks with the highest dividend yields in the United States. Smaller companies tend to exhibit higher volatility, which increases the risks associated with investing in the fund. In addition, dividends can never be guaranteed.

CSB follows a mixed strategy and invests in a combination of value and growth stocks. The financial sector gets the largest allocation of the fund, followed by industry and utilities. The top three ETF holdings include Otter Tail Corp. (OTTR), an energy company that provides electricity to customers in the upper Midwest; CSG Systems International Inc. (CSGS), a business support system software and service provider; And MGE Energy Inc. (MGEE), a utility holding company that produces and distributes electricity and natural gas.

  • Performance over one year: 45.4%
  • Expense rate: 0.60%
  • Annual dividend yield: 1.11%
  • Three-month average daily volume: 113,708
  • Assets under management: $330.5 million​​
  • Date of establishment: November 1, 2017
  • Issuer: First Trust

SDVY tracks the Nasdaq US Small and Medium Cap Dividend Achievement Index, which aims to track 100 small and medium companies that have a history of raising dividends and are expected to continue to do so in the future. ETFs follow a mixed strategy and invest in growth and value stocks at the same time. Among them, financial stocks get the most allocation in the fund, followed by industrial stocks and consumer discretionary stocks.

SDVY’s top three holdings include Boise Cascade Co. (BCC), a manufacturer and distributor of wood products and construction materials; Kforce Inc. (KFRC), a professional staffing and solutions company; and UFP Industries Inc. (UFPI), a manufacturer and distributor of timber and construction products.

The comments, opinions and analysis expressed here are for reference only and should not be regarded as personal investment advice or advice on investing in any securities or adopting any investment strategy. Although we believe that the information provided here is reliable, we do not guarantee its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Due to the rapidly changing market and economic conditions, all comments, opinions and analyses contained in our content are presented on the date of publication and may change without notice. This material is not intended to provide a complete analysis of every important fact about any country, region, market, industry, investment or strategy.

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