Dividend exchange-traded funds (ETFs) are becoming an increasingly popular investment tool for those seeking passive income and liquidity.
Below, Finbold highlighted some of the best dividend ETFs worth considering in the current market environment.
1. Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF (VYM) tracks the FTSE High Dividend Yield Index, beginning with a broad universe of U.S. dividend-paying companies.
As such, it estimates each stock’s expected dividend yield over the next year, with the top half of yielders ending up in the portfolio. Currently, it delivers a yield of about 2.3%.
The strategy isn’t especially aggressive in terms of income. Its main benefit lies rather in the straightforward approach designed to capture above-average yields without taking on excessive risk.
Moreover, with more than 500 holdings, this dividend ETF minimizes concentration risk, and its low 0.04% expense ratio is among the cheapest in the category.
2. Fidelity Global Quality Income UCITS ETF (FGQD)
The Fidelity Global Quality Income UCITS ETF (FGQD) seeks to replicate the performance of the Fidelity Global Quality Income Index. Accordingly, the index targets large- and mid-cap dividend companies. Right now, its yield is at 2.14%.
To identify the best picks, metrics such as free cash flow margin, return on invested capital, and the stability of free cash flow are all assessed. Ultimately, the objective is to pinpoint which names can sustain and grow dividends over time, and only the highest-yielding stocks make the cut.
FGQD carries a total expense ratio (TER) of 0.40% per year, and the so-called full replication strategy ensures it holds all of the index’s underlying constituents to closely mirror performance. Dividends generated by the portfolio are distributed to investors on a quarterly basis.
3. JPMorgan Equity Premium Income ETF (JEPI)
Our third pick, the JPMorgan Equity Premium Income ETF (JEPI), takes a slightly different approach. Namely, rather than simply holding high-yield stocks, the fund builds a portfolio of more than 100 low-volatility equities with relatively attractive risk/return profiles. Currently, this strategy translates to a yield of around 7%.
As part of the covered call strategy, a portion of potential share-price upside is traded away in exchange for option premium income. As a result, JEPI will appeal primarily to investors focused on generating steady cash flow, not those seeking a blend of growth and income.
Likewise, due to the low-volatility nature of its holdings, the dividend fund tends to be more resilient in economic downturn, being supported by solid fundamentals. Therefore, while its risk/return profile differs from more conventional dividend ETFs, the distinction actually works in its favor, making it a useful diversification tool.
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