The following first appeared on InvestorPlace.com as The 10 Best ETFs to Buy for Yield-Starved Investors
Call it the tyranny of choice, but investors looking for income via dividend exchange-traded funds have almost too many options to choose from these days. A simple screen returns nearly 200 dividend-focused ETFs. But in a list that long, how do go about finding the best ETFs?
Do you simply narrow the list to high-yield ETFs? Or do you try to find a balance between current yield and the potential for growth? And what about international or sector diversification?
It’s hard to believe that the Federal Reserve has been raising rates for nearly two years now. After all, savings and money market accounts still yield next to nothing, and even the 10-year Treasury barely yields 2.4%. It’s still a rotten market out there for yield-hungry investors … which explains why dividend ETFs keep sprouting up like weeds.
Today, we’re going to narrow the list down to 10 of the best ETFs for investors looking for income. This list will include both high-yield ETFs and dividend-growth ETFs, as well as targeted sector and international plays. Diversification is important here, as high-yield ETFs can react very differently than dividend-growth ETFs to changes in bond yields or to Fed policy.
With a new Fed Chairman taking office early next year, there is a little more uncertainty than usual, and we want to be prepared.
So, with no further ado, here are 10 of the best ETFs for investors looking for income.
I’ll start with the granddaddy of dividend ETFs, theiShares Select Dividend ETF (DVY). Dividend investing really came back into style following the bursting of the tech bubble and the 2000-2002 bear market, and the iShares fund was the first ETF to jump on that trend. DVY started trading in late 2003.
DVY tracks the Dow Jones U.S. Select Dividend Index, which is composed of 100 of the highest-yielding stocks in the Dow Jones U.S. Index, excluding REITs. In order to make the cut, a stock has to have had dividend growth over the past five years and must have an average dividend coverage ratio of at least 167% over the past five years. The stocks should also have positive earnings over the past 12 months and should have a market cap of at least $1 billion with an average daily trading volume of at least 200,000 shares. The goal is to limit the selection to high-quality companies that are unlikely to slash their dividends any time soon.
DVY sports a current dividend yield of 3%. That might not be exceptionally high, but its more than 50% higher than the S&P 500 these days.
To read the rest of the article, please see The 10 Best ETFs to Buy for Yield-Starved Investors
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.
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