The Best U.S. Dividend ETFs

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Many investors look to Exchange Traded Funds (ETFs) as a way to invest in the U.S. stock market – rightly so – Canada offers only so much in the form of global stock diversification.

As DIY investors ourselves, we know there are many investors out there who may prefer investing in ETFs as a way to own quality stocks.

So, knowing that, these are some of the Best Canadian Dividend ETFs to own.

What might be the best U.S. dividend ETFs to own?

Are there some advantages or disadvantages to owning U.S. dividend ETFs over other investments, including those Canadian-listed funds listed on the TSX?

Read on, find out, including how we continue to invest!

What is an ETF? Why consider a dividend ETF?

In a nutshell, an Exchange Traded Fund (ETF) is a type of security that tracks an index, sector, commodity, or other assets, but which can be purchased or sold on a stock exchange the same way a regular stock can.

An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to track specific investment strategies – many options abound for the ETF creator or provider!

A well-known example of a popular ETF is this one: the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index.

In Canada, a very popular ETF that tracks the biggest 60 companies in Canada is XIU offered by iShares Canada.

What is a dividend ETF?

A dividend ETF is an ETF that is typically constructed with a selection of dividend-paying stocks. Generally speaking, these ETFs track a specific index that is screened to include blue-chip type companies — recognized, well-established companies that are financially sound and considered lower risk; companies that might also increase their dividends with some consistency over time.

Why consider a dividend ETF?

While the broad market indexed ETFs are indeed great (we’ll link to some of our favourites below), a dividend ETF can offer investors something a bit different: income today and growth over time. 

Like My Own Advisor has on his awesome “Dividends” page, companies use dividends to pass on their profits directly to shareholders. They certainly don’t have to but many companies do – instead of buying back shares, just focusing on capital gains, paying down any debt, reinvesting profits back into the business or even still, seeking out mergers and acquisitions.

We believe this is important to understand since dividends are just one (important) part of an investors’ total return. Just because a company pays a dividend doesn’t necessarily make it superior to others – although we love dividend-paying companies quite a bit!

An investor could technically create their own dividend (income stream) by timing the sale of their stock shares. This may or may not appeal to some investors.

The desired goal for many dividend ETFs on the marketplace, and investors that invest in them, is to deliver meaningful income when investing in dividend-paying common stocks, preferred stocks, or real estate investment trusts (REITs).

Overall, dividend ETFs may be considered for risk-averse investors who are looking for income from their portfolio – since dividend ETFs may or may not keep up with any indexed fund returns over time. So, investors approaching retirement or investors now into retirement may decide they don’t need market-like returns. Instead, they are more focused on the meaningful, largely stable income that can be delivered from their portfolio.

This makes dividend ETFs appealing to many investors who don’t want to deal with any stock selection as well. Many well-constructed dividend ETFs will save you the time and effort you might have spent on researching individual stocks, figuring out where value may lie, and dealing with individual stock purchases. Instead of doing that work, you have built-in diversification via the dividend ETF.

So, the punchline is: if you are seeking primarily income from your portfolio and some growth over time then dividend ETFs can be a great consideration.

Ultimately, because total return matters, most investors have a slight bias to broad market indexed ETFs.

As promised, this post contains some of our favourite low-cost, plain vanilla ETFs:

What are the best U.S. dividend ETFs? Why?

We believe there is no one best U.S. dividend ETF to own – it can be a bit subjective to pick just one – so we’ll provide a list. Our U.S. list actually depends on a number of factors. Here are the reasons why certain ETFs are near the top of our list:

  1. We like U.S. dividend ETFs that have a bias to lower fees/lower management expense ratios (MERs). High fund fees are just one of the things to be wary about when it comes to the financial industry – whether you invest in the Canadian market, U.S. market or beyond. Do make time to read more about that in The Four Key for Investing Success. Keeping your money management fees lower, overall, is a great way to keep more money in your pocket and build wealth for you versus others.
  2. We like U.S. dividend ETFs that are denominated in U.S. dollars. While you can certainly own some Canadian-listed ETFs that invest in U.S. dividend-paying stocks, we feel you might be giving up some returns and fees paid to own Canadian-listed ETFs, losing out the valuable advantage of owning assets in the U.S. currency. We’ll have future posts about asset allocation and location on our site but for the most part, we’re a fan of *owning U.S. dividend ETFs in that U.S. dollar currency.

*That said, we know changing Canadian dollars to U.S. dollars can come with some headaches, including timing when the exchange rate could be less than ideal. At least when you do make the exchange, make sure you check out My Own Advisor’s comprehensive post on exchanging Canadian to U.S. dollars for less:

These are the best U.S. dividend ETFs

U.S.-listed ETFs: We’ve selected the following that rise to the top of our list as the best U.S. dividend ETFs to own:

  1. Vanguard High Dividend Yield ETF (VYM)
  2. Vanguard Dividend Appreciation ETF (VIG)
  3. iShares Core Dividend Growth ETF (DGRO)
  4. iShares Core High Dividend ETF (HDV)
  5. Schwab U.S Dividend Equity ETF (SCHD)
  6. State Street SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
  7. ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

All information below is current at the time of this post – quick comparison format:

ETF SymbolMER# of holdingsPayment Frequency5-Year Return10-Year Return
VYM0.06%412Quarterly10.93%13.35%
VIG0.06%247Quarterly15.04%14.49%
DGRO0.08%389Quarterly15.40%n/a
HDV0.08%75Quarterly6.83%10.42%
SCHD0.06%102Quarterly16.36%n/a
SPYD0.07%79Quarterly7.88%n/a
NOBL0.35%65Quarterly13.69%n/a

Canadian-listed U.S. dividend ETFs: Should you wish to avoid any Canadian dollar to U.S. dollar currency conversions work with Norbert’s Gambit, here are some considerations to own

  1. iShares US Dividend Growers Index ETF (CAD-Hedged) (CUD)
  2. Vanguard U.S. Dividend Appreciation Index ETF (CAD-Hedged) (VGH)
  3. BMO US Dividend ETF (ZDY)
ETF SymbolMER# of holdingsPayment Frequency5-Year Return10-Year Return
CUD0.66%112Monthly8.43%12.02%
VGH0.30%247Quarterly13.30%n/a
ZDY0.33%104Monthly7.90%n/a

Best U.S. Dividend ETFs Summary

At the end of the day, we can’t really confirm whether dividend investing or dividend investing via dividend ETFs is right for you. You may already know from our site that as much as we think dividend ETFs are great for some investors, we prefer owning a mix of individual stocks and broad market ETFs.

As such, your mileage may vary!

We look forward to updating this post more overtime to keep it current for you!

Thanks for reading and sharing.

Further Reading:

Looking for help?

If you’ve already been investing for some time, and want to know if you’re on track to meet any long-term goals including semi-retirement or retirement, using dividend stocks or dividend ETFs or other investments – we’re here to help!

If you are interested in participating in a case study, money coaching session(s), and/or obtaining private projections for your financial scenario to answer questions like “how much will I have in retirement?” and/or “how do I withdraw from my retirement accounts in the most tax-efficient manner?”, please contact us here to get started.

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