Best Dividend ETF [Beat S&P 500 by 233%]

[Music] here's the methodology for this review to measure performance i'm going to show you how the underlying index performed not how the actual etf performed so why is that most of the etfs on this list are less than 10 years old so i'm going to take you all the way back to 2003 to see how a 100 000 investment would have grown through november 20th of 2020 and i'm also going to include reinvested dividends so you may be wondering how we're gonna do that how can we get back all the way to 2003 when most of these etfs only have information back to like five or ten years the secret to finding the underlying performance then is not to look at the etf but to look at the underlying index that each etf is tracking in addition to the long-term performance numbers we'll also look at how each index would have performed during the financial crisis of 2007 through 9 and then we'll also look at 2020 the covet 19 crisis now on to the list number 12 is the wisdomtree u.s dividend growth etf dgrw unfortunately the wisdom tree index did not have performance going back to 2003 so i excluded it for this analysis however it is worth noting that this etf actually has the third highest performance over any five year period so it's ranking here at number 12 is not suggesting that it's not a good etf it just wasn't comparable to the others since the underlying index data is limited the real bottom of the list here starts at number 11 with dvy dvy has been a long time favorite amongst dividend investors because of its extremely high dividend yield the yield was 5.09 percent which places it as the third highest dividend yield on this entire list a high dividend yield doesn't necessarily mean a higher rate of return and in fact the index that dvy tracks was the worst performing on this entire list so a 100 000 investment in the dow jones u.s select index on 1231 2003 would have grown to 340 720 and just as a reminder that is with dividends reinvested that would work out to a 7.5 annualized return we can see how some of these higher yielding stocks actually do worse in down markets and that's exactly what we see with dvy's underlying index so from october of 2007 to march 1st 2009 the index declined by 54.6 percent which puts it at the second worst performing index over that time period and again during the covet crisis this fund was the second worst performer dropping by 40.8 from february of 2020 through march 23rd and to top it all off this fund has the highest fee of any etf reviewed at 0.39 percent unless you're looking for a low return high risk high fee etf look elsewhere so speaking of high dividend yields the spyd etf actually has the highest dividend yield of any etf on this list at 5.78 yet once again we see that the high yield did not translate to above average performance a 100 000 investment in the s p 500 high dividend yield index would have grown to three hundred and forty nine thousand three hundred and fifty dollars that would be a seven point six eight percent annual return and with that lackluster performance you also get extremely poor downside protection so during the financial crisis this index declined by 65.1 percent and during covid the strategy fell by 46.1 percent both are the worst of any index reviewed fortunately the fees you pay for such terrible performance and downside risk is only seven basis points so yeah there's there's that going for you number nine is another index focused on high dividends which is becoming a theme vanguard's vym currently yields 3.64 a 100 000 investment in the ftse high dividend yield index would have grown to three hundred and seventy five thousand two hundred and fifty dollars for an annualized eight point one four percent vym is weighted by market cap unlike the others on this list so far so that gives vym a bit better downside protection as larger stocks tend to do better than smaller ones in times of crisis still the downside here was a bit higher than the average fund from 2007 to 2009 the fun dropped by 52.4 percent which was better than both dvy and spyd but it was worse than the rest of the etfs on this list performance during the covid crisis was better as large cap stocks tended to outperform smaller stocks still this vanguard fund falls short of its lower yielding higher quality cousin which we're going to see later on in this list at number eight we have another high yielding etf and just in case you're counting this is now four higher yielding etfs that make up the bottom four long-term performers a 100 000 investment in the s p high yield dividend aristocrats index which is what sdy tracks would have grown to 423 550 by november 2020 for an 8.92 annualized return so unlike the other higher yielding etfs on this list sdy does have a component that focuses it towards more higher quality stocks so this particular index only buys companies that have increased their dividend for at least 25 consecutive years so that higher quality shows up during the financial crisis when we saw this index decline by 46.7 percent which is good for number six overall on this list unfortunately the covid crisis was a bit harder on these dividend aristocrat type stocks so sdy was actually number eight on the list and it declined by 36.4 percent at just under a 3.5 percent yield this fund looks stuck in the middle to me it's not overly impressive on anything performance is okay downside protection is okay and income is okay so overall this etf is okay but it's certainly nothing to write home about vig is one of the most if not the most popular dividend etf out there yet at this list we see it only coming in at number 7 out of 12. a 100 000 investment in the nasdaq u.s dividend achievers select index would have grown to 439 670 by november 2020. so why would anyone buy this etf when you seem to be able to get much better performance elsewhere so what vig lacks in performance it makes up for in quality so this index only looks at companies that have paid and increased the dividend for 10 consecutive years it's also market cap weighted which gives it a tilt towards more larger stable high quality companies so as a result vig has tremendous downside protection and in fact this etf ranks number one on the list for downside protection in both recessions studied during the financial crisis this fund dropped by 41.8 percent which was substantially less than the s p 500 more on that in a minute during the covid crisis vig was one of only two dividend etfs that held up better than the overall market dropping by only 31.4 once again that topped the charts for downside protection at a 1.8 percent yield this fund is not appealing to income seekers it also doesn't necessarily appeal to performance chasers however vig's appeal is in its incredible high quality you would be hard fast excuse me hard pressed to find an index that acts better in down markets that alone can make this etf a valuable addition to any portfolio the s p 500 is often thought to be the gold standard for u.s benchmarks better than the dow better than the nasdaq and i would agree it is simply a market cap weighted benchmark of 500 large profitable companies who trade on u.s exchanges a 100 000 investment in the s p 500 would have grown nine point three four percent annually to four hundred and fifty two thousand and seventy dollars for downside protection the s p 500 declined by fifty point eight percent during the two thousand and seven uh 209 recession that's good for number eight on the list however during covid the s p 500 fell by 33.5 that was good for the third best overall performance so the next five etfs on our list have indices that outperform the s p 500 going back to 2003 which ones are they stick around for the second half the video to find out if you're interested in getting even more information about these etfs i've compiled a spreadsheet for you that you can access for free on my website so i'll put a link to that in the description below if there's anything else you'd like to see let me know in the comment section below with that out of the way let's get back to the list at number five we have dgro this etf tracks the morningstar us dividend growth index that index would have hypothetically grown a hundred thousand dollars to 471 330 going back to 2003 that would be a 9.61 annual return and is good for fifth overall on this list so this particular index outperformed the s p 500 by about .27 annually so it's not a substantial difference and that's partially by design so as we've talked about before in this series the more holdings you have the more similar to the market you're going to be and that's what we see with the dgro underlying index which currently has 420 holdings the only etf that has more holdings on this list is the s p 500 so if you're looking for broad diversification this fund is a really good option for you downside protection was also substantially better in the financial crisis of 07 to 09 this index declined by 43.8 percent which is good for fourth overall on this list it's not as impressive as the index that vig tracks but it's still quite good relative to the overall market as i've mentioned the covid crisis was a bit harder on dividend stocks and this fund bears that out this fund outperformed the s p by about one percent on the way down uh coming in at negative 34.4 percent the dividend yield at 2.84 isn't quite as impressive as some others on this list but it certainly is above average it also features a rock bottom eight basis point fee so all in all degrow represents an extremely well-rounded etf performance has been slightly better than the s p 500 it also is extremely well diversified across more than 400 different holdings so if you're looking for a core holding in your dividend etf portfolio dgro is hard to beat of all the etfs on this list sphd is the most confusing it has a staggering 5.7 dividend yield and an impressive showing in the historical analysis for both the performance and for the downside protection the underlying index that sphd tracks is the s p 500 low volatility high dividend index which is a mouthful the index produced over 10 percent annual returns and it also performed quite admirably in 2007 to 09 declining by 42.9 percent which is the third best on this entire list so we have a high yield market beating performance less downside risk this has to be the greatest etf ever right unfortunately the post 2009 period has been far less impressive the sphd etf has the second worst performance over the last one year and is actually dead last on both three and five year performance downside protection has also been a little more suspect during the covid crisis this fund declined by over 40 percent which only be spyd and dvy on this list also at 50 holdings this index is the most concentrated amongst the list so that allows it to outperform significantly when it's in the right stocks the things can really fall off when the environment is against it so all in all sphd is a little bit too inconsistent for my liking if you're looking for a high dividend yield etf stay tuned there's another etf higher up on this list that could be for you the third best performing dividend index on this list is the ticker symbol in obl this index is comprised of dividend stocks that have at least 25 consecutive years of dividend growth this methodology has shown very impressive long-term performance since 2003 the index has returned about ten point nine percent annually which is good enough to grow a hundred thousand dollars to five hundred and seventy thousand one sixty this performance has not been as consistent as other indices for example from 2003 to 2007 this fund ranked just eighth overall but strong performance from 09 to 2020 more than made up for it noble was the second best performing etf over that time period noble also held up exceptionally well during the 0709 financial crisis companies with long histories like noble owns were priced for their quality businesses and balance sheet strength the index declined just 42.3 percent which was the second best downside protection this fund was also a more average during the covid crisis declining 35.2 percent nevertheless noble has demonstrated fantastic long-term performance particularly from oni 2000 2009 to 2020 downside protection has also been strong unfortunately its inconsistency and relatively high 0.35 percent fee not what would otherwise be a very strong contender for the best dividend etf as it is there is a more impressive dividend etf on this list that is number two the schwab u.s dividend equity etf ticker symbol schd the 4.13 dividend yield is not the highest on this list but it's still quite high relative to the s p 500s measly 1.74 and more importantly schd doesn't compromise on total return or downside protection as we saw with the other higher yielding etfs a 100 000 investment in schd this index would have grown to six hundred and fourteen thousand seven hundred and eighty dollars the downside protection hasn't quite been as strong as others namely vig but it did come in at number five overall during the financial crisis dropping by 44.7 percent and it was only one of two etfs with the other being vig that outperformed during the financial crisis caused by covid the schd index fell by 32.6 and to top it all off schd has the lowest expense ratio on this list tied with vig and vym so all in all schd's underlying index provides an incredibly attractive balance of performance in all market environments has impressive downside protection and the dividend yield is well above the average fund and the six basis point fee makes it a compelling argument for the best dividend etf on this list yet there's still one more on this list my number one overall favorite etf of all time the mtum those of you who follow my channel know that i'm a huge fan of momentum if you want to know more about momentum and why it works you can see this video here but the bottom line is that momentum has been the best predictor of market outperformance for the longest time period so academics even academics who think the market is perfectly efficient have stated that they simply cannot account for why momentum has done so incredibly well the performance shows up in this index which has delivered an astounding 12.06 percent annual return since 2003 which would have grown a hundred thousand to six hundred and eighty four thousand seven hundred and ten dollars by november twenty twenty downside protection was about on par with the s p 500 during the 2007 to 2009 period but the funds slightly outperformed during covid with a negative 33.6 showing m tem doesn't have much to show for income at a current yield of 0.8 percent nevertheless momentum has been studied going back nearly 100 years with practitioners using this since the 1800s and research shows that momentum works as a market beating factor and msci's momentum index bears that out so if you're looking for long-term performance and you don't mind the downside or low yield mtum is one of the best etfs money can buy [Music]

Channel: Nathan Winklepleck, CFA

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Id: TPSw7On2gUo

Length: 19min 46sec (1186 seconds)

Published: Wed Dec 02 2020