There’s plenty of incentive to play the long game when it comes to dividend ETFs. Undoubtedly, many of them are equipped to pay distributions for life, giving investors less reason to trade them and more reason to stash them away while allowing the dividend payments to just trickle in every month or quarter.
In this piece, we’ll have a closer look at a pair of intriguing dividend ETFs that not only can act as durable, growing income streams but can also offer more in the way of diversification, especially in a time when many indexers may be unaware of how much downside risk they could face if the technology sector were to go through a storm of sorts.
Indeed, it falls back to the S&P 500’s concentration risk, which might continue to get out of hand as the Magnificent Seven stocks continue to do much of the heavy lifting in any given year. With volatility kicking things up in October, with new 100% tariffs potentially on the table for China come the start of November, perhaps it’s time to take more of a lower-beta, income-oriented approach to ride out what could be a rocky fourth quarter for markets. Here are two dividend ETFs that bring more than just steady income to the table:
Vanguard High Dividend Yield ETF
The Vanguard High Dividend Yield ETF (NYSEARCA:VYM | VYM Price Prediction) is one of the most popular dividend ETFs out there, and for good reason. It seems to strike the perfect balance between income and growth, with a 2.5% yield and some fairly growthy names in the top-10 holdings.
With more names (581 stocks) and more representation of sectors underrepresented (at least compared to tech) compared to the S&P, the VYM certainly seems like a great alternative to side-step the concentration risk and the froth that could make the tech sector most vulnerable come the next market-wide valuation reset or rotation. For the most part, the dividend-paying growers are nicely balanced out with some of the low-growth, high-yield heavyweights.
The result? A more bountiful ETF that can better withstand the next market hurricane. With a 0.85 beta and 1% more yield than the S&P, perhaps it’s time to view the VYM as a new go-to ETF to invest in at the end of every month.
Capital Group Dividend Value ETF
As outstanding as the VYM is for investors seeking balance and better diversification across sectors, it’s not exactly an ETF that has value at the top of mind. The Capital Group Dividend Value ETF (NYSEARCA:CGDV) stands out as an even more enticing mix of dividend, growth, and value. Of course, the dividend sits at a relatively low 1.33% at the time of this writing. Still, it’s better than the S&P and with a potentially lower risk profile, as tech and AI bubble concerns mount.
The CGDV has a gold rating from Morningstar, which should capture investors’ attention. Though the expense ratio is a tad on the high side at 0.33%, especially compared to Vanguard’s indexing solutions, the ETF’s methodology and stock mix are enticing. Additionally, the CGDV is an active ETF, and 0.33% isn’t all too bad for a more active approach.
As the name of the ETF suggests, the CGDV seeks to focus on high-conviction ideas with more of a value tilt. And, of course, a vast majority of the ETF invests in stocks that pay dividends, many of which are growing at a decent pace.
Perhaps the biggest reason to own the CGDV over the VYM or S&P is the focus on lesser-appreciated names that stand out as potential sleeping giants. Of course, you’re getting a good dose of Magnificent Seven exposure with the CGDV, but with concentrations that aren’t out of hand (think single-digit percentage exposure compared to double-digit for the top S&P’s holdings). All considered, the CGDV is one of the most well-rounded dividend-paying ETFs out there.
Top Gaining Stocks
Top Losing Stocks