Investors were already pricing in a rate cut from the Federal Reserve this month amid easing inflation data, and now a recent string of weak manufacturing and jobs data seems to be building the case for a 50-basis point cut when Fed Chair Jerome Powell meets with central bankers this September. After a long period of relative dormancy during this bull market, dividend stocks could soon catch a stronger bid as investors in search of yield start to look beyond bonds.
Plus, against a backdrop of heightened geopolitical uncertainty, reliable dividend stocks can help to provide a semblance of stability through regular income. Dividend-paying companies are often fundamentally strong, with reputable management and a track record of navigating through difficult business cycles, which has earned the best dividend stocks a reputation as “defensive” investments.
However, as with stock picking in any sector of the market, separating the wheat from the chaff among dividend stocks can be a time-consuming challenge. Some companies might offer what seems to be a high yield largely on the back of precipitous share price declines, or due to unsustainable payout ratios that leave the dividend vulnerable to a future cut or suspension.
To tap into the benefits of reliable passive income without the potential pitfalls of stock picking, dividend ETFs are an investment vehicle worth considering. To that end, here are three top dividend-focused exchange-traded funds (ETFs) worth a closer look this September.
#1. Schwab US Dividend Equity ETF
We kick off our list with the Schwab US Dividend Equity ETF (SCHD). Housed under the Charles Schwab (SCHW) stable, this ETF is a passively managed one, designed to track the Dow Jones U.S. Dividend 100 Index. This index consists of 100 U.S. companies that have a history of consistently paying dividends and are selected based on financial strength.
The ETF's primary goal is to provide investors with exposure to high-quality, dividend-paying stocks. SCHD aims to outperform the overall stock market over the long term by focusing on companies with strong fundamentals and a history of dividend increases.
With assets under management (AUM) of $60.16 billion, the ETF offers a dividend yield of 3.38%, and charges a management fee of 0.06%. Shares of the ETF are up 9.7% on a YTD basis.
Notably, the ETF has an average volume of 2.5 million shares, offering healthy liquidity - though its options market is not quite so active. SCHD's top three holdings are Lockheed Martin (LMT), Abbvie (ABBV), and BlackRock (BLK).
#2. JPMorgan Equity Premium Income ETF
Founded in 2020, the JPMorgan Equity Premium Income ETF (JEPI) is a closed-end fund that aims to generate current income through a combination of dividends from underlying equity securities and covered call-writing strategies. This means the fund sells (writes) call options against a portion of its portfolio, generating income from the option premiums.
JEPI has an AUM of $34.98 billion and carries an expense ratio of 0.35%. Offering a dividend yield of 7.16%, shares of the ETF are up 5.8% on a YTD basis.
The ETF's average volume is 2.5 million shares, with a thinly traded options market. JEPI's top three holdings are Progressive Corp (PGR), Trane Technologies (TT) and Southern Co. (SO).
#3. iShares International Select Dividend ETF
We conclude our list with the iShares International Select Dividend ETF (IDV), from the family of the world's largest asset manager, BlackRock.
Founded in 2005, the IDV is a passively managed ETF that seeks to track the performance of the S&P International Select Dividend Index. This index consists of international companies that have a history of paying dividends, and are selected based on financial strength and dividend yield. This makes IDV a solid choice for investors seeking exposure to non-U.S. dividend stocks, in particular. Its current AUM stands at $4.25 billion.
Offering a dividend yield of 6.26%, shares of the IDV ETF are up 5.6% on a YTD basis. The fund's expense ratio is 0.49%.
With an average volume of 376,000 shares, the specialized ETF isn't quite as actively traded as its domestically focused counterparts, which means prospective investors will want to use limit orders and practice some patience on entries to keep slippage to a minimum.
IDV's top three holdings are British American Tobacco (BTI), Totalenergies (TTE), and Bhp Billiton Ltd ADR (BHP).
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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