Creating a stream of passive income is key to a comfortable retirement. And to do this, many people turn to dividend stocks. Dividends are regular payments companies make from their profits. So you can think of it as a plus in addition to what you get from the stock’s price growth.
But it may be difficult to pick dividend stocks. That’s why many investors prefer dividend ETFs. An ETF is a professionally managed fund that could invest in hundreds or even thousands of stocks.
And one of the most popular dividend ETFs out there is the Schwab US Dividend Equity ETF (SCHD). This ETF is known for its strong performance, ultra low fees and diversification. But there are other funds out there that are outshining SCHD in many ways.
So let’s take a closer look at these other top contenders.
Amplify CWP Enhanced Dividend Income ETF (DIVO)
The Amplify CWP Enhanced Dividend Income ETF (DIVO) is a bit different from your typical dividend ETF. It’s an actively managed ETF that seeks income in two ways. It combines dividend stocks with a history of earnings growth along with a strategy that involves writing covered calls on those stocks.
DIVO has a 5-year return of around 44.42%. Meanwhile, SCHD has a 5-year return of only 32.63%.
DIVO screens for high-quality large-cap companies with historical dividend and earnings growth, according to its official website. SCHD’s holdings are mainly in the energy sector, while DIVO focuses on the financial and informational technology sectors.
DIVO’s top holdings include big names like Caterpillar Inc (NYSE:CAT), Apple (NASDAQ:AAP) and American Express (NYSE:AXP). It holds net assets of about $5.2 billion.
But because it’s an actively managed fund, it has a higher expense ratio than its passively managed counterpart SCHD.
DIVO’s expense ratio stands at 0.56%, while SCHD has one of 0.06%.
Actively managed means the fund aims to outperform a particular market index rather than simply mirror it.
SPDR Dow Jones Industrial Average ETF Trust (DIA)
The SPDR Dow Jones Industrial Average ETF Trust (DIA) invests in 30 blue chip stocks. These are shares of well-established, large-cap and financially stable companies with histories of strong performance. It also focuses on the financials and energy sectors. Its top holdings are Microsoft, Caterpillar and Goldman Sachs. And it outperforms a SCHD with a 5-year return of about 63.56% and a year-to-date return of 13.91%. It has net assets of about $39.47 billion. And it has a competitive expense ratio of 0.16%.
WisdomTree U.S. Total Dividend Fund (DTD)
The WisdomTree U.S. Total Dividend Fund (DTD) invests in a broad selection of all cap dividend paying companies. And it earned a four-star overall Morningstar rating. It also outperformed SCHD with a five-year return of about 68.96% and a year-to-date return of around 11.59%.
Like our last two ETFs, its holdings are mainly in financials and information technology. Its top holdings are Microsoft (NASDAQ:MSFT), JPMorgan Chase (NYSE:JPM) and Apple (NASDAQ:AAPL). It holds net assets of about $1.48 billion. DTD also has a competitive expense ratio of 0.28%.
So we’ve explored some top dividend-paying ETFs that have historically outperformed SCHD. But this doesn’t mean you should sleep on SCHD. This popular dividend paying fund can also have a place in your portfolio.
Schwab US Dividend Equity ETF (SCHD)
The Schwab US Dividend Equity ETF invests in 80 high-quality companies found in the Dow Jones U.S. Dividend 100 Index.
These large cap companies are screened for strong financials and consistent dividend payments. Among its highlights is a low expanse ratio of 0.06%.
SCHD’s top holdings are in energy, consumer staples and healthcare sectors. These are generally considered defensive sectors. This means these companies may stay stable even in times of economic downturns. SCHD has net assets of about $71.55 billion.
How to Choose Dividend ETFs
These dividend paying ETFs are just some of your top options. To choose the right ones, you may want to take a few steps. Consider the fund’s track record of dividend payments and growth over time. Also, consider dividend yield. But keep in mind that chasing higher yields could mean taking on more risk. Additionally, look at the fund’s investing strategy and evaluate its holdings. You’d also want to look at its expense ratio, as a high one can diminish your returns. Overall, the best dividend ETF aligns with your unique investment goals, time horizon and risk tolerance.
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