Many investors rely on investments that provide a regular stream of passive income as dividends and lead to capital appreciation in the long run. Thus, amid economic and market turmoil, dividend ETFs can optimize investment portfolios with their distinct qualities.
Amid this backdrop, investing in fundamentally stable dividend ETFs SPDR S&P Dividend ETF (SDY), Vanguard High Dividend Yield ETF (VYM), and Schwab U.S. Dividend Equity ETF (SCHD) might be wise for investors who are looking for diversification of their portfolios and passive income at the same time.
The U.S. economy is still adjusting to high prices and elevated interest rates. The PCE price index (excluding food and energy prices) increased 2.6% annually, which is up from the expected rate but still proving to be steady. However, if inflation continues to slow, the Fed might suggest a rate cut in September.
In addition, according to the International Monetary Fund, U.S. net interest payments on federal debt are set to rise to 3.2% of GDP in fiscal 2024, up from 2.4% in fiscal 2023 due to higher interest rates, showing ongoing fiscal challenges. All of this can be countered with the hopes of a potential interest rate cut by the Federal Reserve, and all fingers point toward that for an incoming solution.
Amid such uncertain growth prospects and ongoing policy changes, dividend ETFs can provide stability and reliable income, making them a smart investment choice in this unpredictable environment. These investments provide steady income through regular payouts, making them ideal for risk-averse investors seeking consistent returns.
Considering these trends, let’s analyze the fundamentals of the three dividend ETFs belonging to the Large Cap Value ETFs group, starting with #3.
SPDR S&P Dividend ETF (SDY)
Launched by State Street Global Advisors, Inc. and managed by SSGA Funds Management, Inc., SDY focuses on growth and value stocks across diverse market caps. It invests in dividend-paying companies to mirror the S&P High Yield Dividend Aristocrats Index, employing a representative sampling approach for performance tracking.
SDY has $21.17 billion in assets under management (AUM). Moreover, the fund has a total of 135 holdings. Its top holdings include Realty Income Corporation (O) with a 2.81% weighting, Kenvue, Inc. (KVUE) at 2.31%, and Xcel Energy Inc. (XEL) at 1.85%. In addition, SDY has a beta of 0.86.
SDY has an expense ratio of 0.35%, lower than the 0.48% category average. Moreover, its NAV stood at $138.34 as of August 28, 2024.
SDY pays an annual dividend of $3.34, which yields 2.41% at the prevailing price level. Moreover, its dividends have increased at a CAGR of 6.64% over the past five years.
SDY has gained 4.1% over the past month and 10.8% over the past six months to close the last trading session at $139.02.
SDY’s POWR Ratings are consistent with its strong fundamentals. The ETF has an overall A rating, equating to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SDY also has an A grade for Trade and Buy & Hold. It is ranked #8 among 89 ETFs within the A-rated Large Cap Value ETFs group.
To access all of SDY’s POWR Ratings, click here.
Vanguard High Dividend Yield ETF (VYM)
Managed by The Vanguard Group, Inc., VYM is an ETF that targets U.S. public equity markets. It provides exposure to large-cap companies offering dividends and value characteristics within the U.S. equity realm. VYM aims to replicate the FTSE High Dividend Yield Index through a full replication methodology.
VYM has $57.49 billion in AUM. It has 553 holdings in total. Broadcom Inc. (AVGO) has a 4.23% weighting in the fund as its top holding, followed by JPMorgan Chase & Co. (JPM) at 3.53% and Exxon Mobil Corporation (XOM) at 3.08%.
The ETF’s net inflows were $465.98 million over the past three months. In addition, its 0.06% expense ratio compares favorably to the 0.49% category average. Also, VYM’s NAV was $125.65 as of August 28, 2024. Furthermore, it has a beta of 0.84.
The fund has increased its dividends for 13 consecutive years. It pays a $3.56 dividend annually, yielding 2.83% at the current price level. Its dividends have grown at a 5.8% CAGR over the past five years.
VYM has gained 9.4% over the past six months and 18.1% over the past year to close the last trading session at $126.30.
It’s no surprise that VYM has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The ETF has an A grade for Trade and Buy & Hold.
Within the Large Cap Value ETFs group, it is ranked #4 out of 89 ETFs. Click here to access all the VYM ratings.
Schwab U.S. Dividend Equity ETF (SCHD)
SCHD, an ETF overseen by Charles Schwab Investment Management, Inc., invests in companies spanning energy, materials, industrials, consumer sectors, and more. It seeks to replicate the Dow Jones U.S. Dividend 100 Index by fully replicating its constituents, focusing on dividend performance across various sectors.
With $59.91 billion in AUM, SCHD’s top holding is Lockheed Martin Corporation (LMT), which has a 4.47% weighting in the fund. It is followed by AbbVie, Inc. (ABBV) at 4.45% and Home Depot, Inc. (HD) at 4.22% weighting. The fund has a total of 101 holdings. It has a beta of 0.88.
SCHD has an expense ratio of 0.06%, lower than the category average of 0.49%. Its net inflows came in at $1.04 billion over the past three months and $4.05 billion over the past year. The fund has a NAV of $83.47 as of August 28, 2024.
SCHD pays a $2.83 annual dividend yielding 3.39% at the prevailing price level. The fund’s dividend payouts have grown at a CAGR of 12.9% over the past five years. Also, SCHD has raised its dividends for 12 consecutive years.
SCHD has gained 8.3% over the past three months and 17.3% over the past nine months to close the last trading session at $83.88.
SCHD’s POWR Ratings reflect its strong outlook. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system.
SCHD has an A grade for Trade and Buy & Hold. It is ranked #2 out of the 89-ETF Large Cap Value ETFs group.
Click here to see all of SCHD’s POWR Ratings.
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SCHD shares were trading at $83.85 per share on Thursday morning, up $0.35 (+0.42%). Year-to-date, SCHD has gained 12.17%, versus a 19.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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