Top Holdings Of Dividend ETFs (November 2017 Edition) (2024)

In December last year, I presented the Top Holdings of Dividend ETFs, a virtual portfolio of dividend growth stocks compiled from 27 exchange-traded funds (ETFs) that invest in dividend-paying stocks. In June 2017, I presented an update based on 28 dividend ETFs.

To compile the virtual portfolio, I analyze the top 25 holdings in each ETF and assign scores proportional to the size of each holding. Summing the scores of individual holdings allows me to rank them by popularity, and so to find the top holdings of these dividend ETFs.

This article repeats the exercise, this time with 32 dividend ETFs. I present the top 50 holdings along with key statistics and fair value estimates from Morningstar.

About ETFs

ETFs are investment funds that hold assets like stocks, commodities, or bonds. Ownership of the assets under management is divided into ETF shares, which are traded on public stock exchanges much like shares of stocks. ETF shareholders are entitled to a proportion of profits, such as earned interest or dividends received.

Investing in ETFs provides several benefits, including instant diversification and passive investment. However, you have no control over the makeup of the ETF or its turnover rate. The investment manager determines the ETF's makeup and trading frequency and charges a recurring annual fee, expressed as the ETF's expense ratio

Dividend ETFs invest in stocks that regularly pay and increase dividends.

Dividend ETF Analysis

To identify dividend ETFs for this analysis, I used ETFdb's screener.

I selected ETF (under Structure) and Equity (under Asset Class), then limited the search to Dividend ETFs (under Investment Style) in North America (under Region). These filters isolated 63 ETFs out of ETFdb's universe of 2,083 ETFs.

Additionally, I wanted to limit the analysis to ETFs that have positive 3-year returns. I used the 3-Year Performance slider (under Performance) and set the minimum to 0%, so isolating 32 ETFs with positive 3-year returns.

In the table below, these ETFs are sorted by assets under management (in millions of dollars). The data source is ETFdb and the data presented in the table were extracted on 23 November 2017. In June's analysis, I analyzed 28 ETFs. This time there are 32 ETFs, and the tickers of the four "new" ETFs are colored green:

To do the analysis, I created a spreadsheet and entered the tickers of the top 25 holdings for each of the 32 dividend ETFs. Alongside the tickers, I also entered the size of each holding.

To rank the top holdings, I used the relative size of each holding to score the corresponding ticker. This proportional scoring system favors larger investments over smaller investments within the same ETF.

For November's update, I wanted to give larger ETFs more say when calculating aggregate scores. In my view, using weights proportional to assets under management would skew the result too much. Specifically, the Vanguard Dividend Appreciation ETF (VIG) is 878 times larger than the First Trust RBA Quality Income ETF (QINC)!

Instead, I used weights based on the following formula:

w = floor (log₁₀ (assets in millions))

In essence, weights are assigned proportional to the number of digits in the assets column, minus 1:

• ETFs with assets under $100 million get a weight of 1.
• ETFs with assets between $100 million and $1,000 million get a weight of 2.
• ETFs with assets of $1,000 million to $10,000 million get a weight of 3.
• ETFs with assets of $10,000 million to $100,000 million get a weight of 4.

With proportional scores assigned to each ticker per ETF and weights assigned to each ETF, I simply calculated a weighted sum to get an aggregate score for each ticker.

There are 290 unique tickers in my analysis spreadsheet.

The following chart presents the top 50 holdings ranked by aggregate score. The tickers are color-coded by GICS sector:

Exxon Mobil (XOM) was ranked #2 on the June 2017 list, but now it is the clear winner. XOM is followed by Procter & Gamble (PG) and Johnson & Johnson (JNJ), which was the top-ranked stock on the June 2017 list.

International Business Machines (IBM) appeared in the top 25 holdings of no fewer than 20 dividend ETFs, the most of any stock! Here is a table of frequencies (of appearance) of the top 10 ranked stocks:

Interestingly, Microsoft (MSFT) appeared in only 9 of the top 25's, yet it is ranked higher than IBM, which appeared in 20 of the top 25's. The reason is that the dividend ETFs have rather large MSFT holdings and relatively smaller IBM holdings. I'm sure MSFT's stock performance over the last six months is a contributing factor: MSFT has added nearly 20% since the beginning of June, while IBM has been essentially flat.

Changes Since June 2017

Comparing the top holdings of November 2017 to those of June 2017, some interesting changes are evident.

First, consider how the top 10 holdings changed. Four stocks moved into the top 10 list (those in green-colored cells), displacing the stocks in the red-colored cells:

Chevron (CVX) moved up 8 places, MSFT moved up 10 places, IBM moved up 14 places, and Wal-Mart Stores (WMT) moved up 4 places.

On the other hand, McDonald's (MCD) dropped 16 places, Altria Group (MO) dropped 11 places, Philip Morris International (PM) dropped 15 places, and Apple (AAPL) dropped 4 places.

As for the top 50 holdings, the following 9 stocks are new (they're on the November 2017 list but not on the June 2017 list):

• Qualcomm (QCOM) — ranked #27
• DowDuPont (DWDP) — ranked #31
• Kimberly-Clark (KMB) — ranked #36
• Medtronic (MDT) — ranked #37
• T. Rowe Price (TROW) — ranked #41
• Dominion Energy (D) — ranked #45
• Consolidated Edison (ED) — ranked #47
• Pinnacle West Capital (PNW) — ranked #48
• Eaton (ETN) — ranked #49

These stocks dropped off the top 50 list (they're on the June 2017 list but not on the November 2017 list):

• Duke Energy (DUK) — previously ranked #29
• CenturyLink (CTL) — previously ranked #30
• Nike (NKE) — previously ranked #37
• Lowe's Companies (LOW) — previously ranked #38
• Amgen (AMGN) — previously ranked #39
• Reynolds American (RAI) — previously ranked #40
• PPL (PPL) — previously ranked #41
• Coach, Inc. (COH) — previously ranked #47
• Abbott Laboratories (ABT) — previously ranked #49

Top Holdings By Sector

Following is the entire list of holdings along with key statistics, organized by GICS sectors.

In each table, Rank is the stock's position when ranked by aggregate score, while Freq indicates the number of dividend ETFs containing Ticker in their top 25 holdings. Years are the number of consecutive years of dividend increases; Yield is the dividend yield as of the closing Price on 22 November 2017; and 3-DGR is the compound annual dividend growth rate over a 3-year period, where available. Finally, M*FV is Morningstar's Fair Value Estimate. Stocks trading below Morningstar's fair value estimate are highlighted in the price column.

1. Consumer Discretionary

2. Consumer Staples

3. Energy

4. Financials

5. Health Care

6. Industrials

7. Information Technology

8. Materials

9. Real Estate

None

10. Telecommunication Services

11. Utilities

There are no stocks in the Real Estate sector in the top 50 dividend ETF holdings, most probably because Real Estate Investment Trusts (REITs) have their own category at ETFdb.

How Does Your Portfolio Compare?

Readers who manage their own dividend growth portfolios may find it interesting to compare their own portfolio to the top 50 holdings. Are there any surprises? How many of the top 10 stocks do you own? How about the top 25 stocks?

Comparing my DivGro portfolio of 58 different stocks, I own 8 of the top 10, and 17 of the top 25 stocks:

Of the top 25 stocks I don't own, Pfizer (PFE), PepsiCo (PEP), and Wells Fargo (WFC) are trading at discounts to Morningstar's fair value estimates.

Perhaps more interesting are the stocks I own that are nowhere to be found in any of the top 25's of the dividend ETFs I analyzed:

• Blackstone Mortgage Trust (BXMT)
• Gilead Sciences (GILD)
• Hannon Armstrong Sustainable Infrastructure Capital (HASI)
• Main Street Capital (MAIN)
• Nvidia (NVDA)
• Omega Healthcare Investors (OHI)
• Raytheon Company (RTN)
• Starbucks (SBUX)
• Stanley Black & Decker (SWK)

BXMT, HASI, and OHI are REITs (real estate investment trusts), which have their own category at ETFdb. There is a useful guide at ETFdb explaining the ins-and-outs of REIT ETFs.

MAIN is organized as a business development company, which also has its own category at ETFdb.

GILD and NVDA are relatively new dividend payers.

As for RTN, SBUX, and SWK, I'm frankly surprised that none of these stocks make any of the top 25's. In my view, these are solid dividend growth stocks.

In June 2017, I opened small positions in the so-called FANG stocks. Since these are not dividend paying stocks, I wouldn't expect them to appear in the top 25's of the dividend ETFs I analyzed. And, indeed, they don't.

Concluding Remarks

Analyzing the holdings of dividend ETFs is an insightful exercise. Publicly-available data on the top holdings and assets under management allows one to rank these holdings and to create a list of dividend growth stocks worthy of consideration.

Please note that I'm not recommending any of the top holdings of dividend ETFs. Many of these stocks are trading above fair value and may not be suitable for investment at this time. Before investing in any of these stocks, please do a thorough analysis to determine if the stocks are worthy of your investment dollars. I included Morningstar fair value estimates to help with a superficial value assessment.

Since publishing my first Top Holdings article in December 2016, I've opened a position in the Vanguard High Dividend Yield ETF (VYM) in March 2017. The main reason for investing in VYM was to increase my portfolio's overall diversification. I like the ETF's yield and low expense ratio, as well as its overall performance. So far, the ETF has returned 7.35% (or about 10.6% annualized).

Other than VYM, I don't own any of the dividend ETFs covered in this article. I do own two closed-end funds in my portfolio, mainly to increase diversification and to boost DivGro's yield. These are the Nuveen Floating Rate Income Fund (JFR) and the AllianzGI Equity and Convertible Income Fund (NIE).

Investing in ETFs provides several benefits, including instant diversification and passive investment. However, you have no control over the makeup of the ETF or its turnover rate. The investment manager determines the ETF's makeup and trading frequency and charges a recurring annual fee, expressed as the ETF's expense ratio.

Dividend ETFs are good for beginning investors and especially for those with less than $10,000 to invest. You get a basket of stocks with a single trade, saving on commissions and reducing your risk. Also, there's no need to research or monitor 20-50 companies because the investment manager of the ETF does the job for you.

Of course, there are drawbacks to owning dividend ETFs, including recurring annual fees and lack of control. Compounding fees could cost you a lot over a long investment period. Worse, though, you don't have any say in the makeup of the basket of stocks or the turnover rate. The investment manager may chase higher yields and so increase overall risk, or change out stocks and increase reinvestment risk.

As a bonus, here is a summary of key data and ratings of the ETFs used in this analysis. Except where otherwise indicated, the data source is ETFdb.

Thanks for reading! If you liked this article and would like to read similar articles in future, please click the Follow link at the top of this article.

Also, if you would like to see regular updates of the Top Holdings of Dividend ETFs, please let me know in the comments below.

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