By Christian Magoon
CEO, Magoon Capital
Dividend ETFs have received considerable inflows in 2012 as investors seek funds that pay out attractive distributions while offering equity upside. Three domestic dividend ETFs stand out in total performance from the dozen ETFs focused on this space. They are not the largest dividend ETFs but all have total returns in access of 8% this year while providing a dividend cushion of more than 1% above the S&P 500 ETF (SPY).
WisdomTree, an ETF provider originally built on dividend investing, takes the gold medal with their Equity Income ETF (DHS). This ETF tracks a propietary WisdomTree index that invests in the top 30% of high dividend yielding companies with minimum market cap and trading volume hurdles. DHS holds an eye popping 340 positions in dividend paying securities and maintains the second highest dividend of the entire peer group with a 30 day SEC yield on 3.93%. It has returned an impressive 8.99% year to date.
ETF giant iShares steps up to take the silver medal with its iShares High Dividend Equity ETF (HDV). The ETF tracks the Morningstar Dividend Yield Focus Index. This index owns 75 companies that meet high income and quality screens. The current 30 day SEC yield is a healthy 3.61%. HDV has gained 8.91% this year.
The growing line up of First Trust ETFs is represented by the Morningstar Dividend Leaders ETF (FDL) with the bronze medal. FDL tracks yet another Morningstar Index and illustrates Morningstar's growing influence and success in the ETF business. The Morningstar Dividend Leaders index owns a group of 100 companies that have shown dividend consistency and sustainability. FDL has a 30 day SEC yield of 3.88%. It has gained 8.32%, joining just two other domestic dividend ETFs that have gains above 8% this year.
Here's a comparison grid illustrating several of the differences and similarities of the top three domestic dividend ETFs year to date. This grid also serves as a worthwhile guide on what is working in the land of dividend investing this year.
Clearly the best dividends ETFs of 2012 have a lot in common in top sector and security holdings and will continue to succeed or fail based off these allocations.
Finally, it is interesting to note that the most popular dividend ETFs, VIG from Vanguard, SDY from State Street and DVY from iShares all failed to break into the top three. These ETFs hold about $30 billion of investor assets and have gained between 4.7% - 6.4% year to date. In contrast, the three best domestic dividend ETFs hold less than $3 billion in assets, once again proving that it can pay to not blindly invest in the most popular ETFs in the marketplace.