Top 10 Large-Cap Dividend ETFs for 2017
Best Large-Cap Dividend ETFs
For decades, large-cap stocks have been a staple in many income investors’ portfolios. Some of these companies have been operating for well over a century and have solid track records of paying dividends. One way for investors to get exposure to large-cap stocks is by investing in exchange-traded funds (ETFs) that focus specifically on the biggest players in the market. In this article, we are going to take a look at the best large-cap dividend ETFs for 2017.
Top 10 Large-Cap ETFs
There are many reasons why income investors should consider large-cap dividend stocks. First, many large-cap stocks are blue-chip companies. They have a well-established reputation with consumers and are often leaders in their respective markets. Some of the large-cap companies have been around for a long time and have proven that they can survive economic downturns. The stability they offer makes them a great choice for investors with low risk tolerance.
Second, since many large-cap companies are already established, they have the ability to return value to shareholders. Compared to mid-cap and small-cap stocks, large-cap ones tend to have the most impressive track records of paying dividends. In fact, the majority of “dividend kings”—companies that have raised their dividend every year for at least 50 years—are large-cap companies. The definition of a large-cap stock is a company with a market capitalization of more than $5.0 billion.
Third, because of the importance of large-cap companies in their respective industries and their huge following in the investment world, many large-cap stocks have been extensively analyzed by investment professionals. If an investor wants to look into a particular large-cap company, chances are there will be plenty of resources in addition to the company’s own financial statements.
Now, some investors may be wondering, since large-cap companies offer so many benefits on their own, why bother with large-cap ETFs?
Well, one of the most important reasons to invest in large-cap ETFs is to diversify. While many large-cap companies look rock-solid, not all of them are bulletproof. For instance, Enron Corporation was one of the world’s major electricity, natural gas, communications and pulp and paper companies, with a market cap of over $60.0 billion in 2000. It was even named “America’s Most Innovative Company” by Fortune for six consecutive years. However, as the company’s accounting scandal broke out, investors learned that its financials were much worse than what they appeared to be. Enron filed for Chapter 11 bankruptcy in 2001, wiping out tens of billions of dollars of shareholder value.
And then there’s Lehman Brothers Holdings Inc., which was the fourth largest investment bank in the U.S. with 158 years of operating history. In February 2007, the company’s stock price rose to $86.18, giving it a market cap of close to $60.0 billion. But as the subprime mortgage crisis started to unfold, Lehman Brothers filed for Bankruptcy. With $639.0 billion in assets and $619.0 billion in debt, Lehman’s bankruptcy filing is the largest in U.S. history.
The moral of the story is that even companies that have achieved blue-chip status carry a certain degree of risk. I’m sure there were investors that spotted the problems with Enron and Lehman Brothers before their downfall, but the dramatic tumble in their stock prices showed that most investors weren’t aware of the situation before it was too late.
How can investors protect themselves from events like these? Well, conducting due diligence before investing is certainly of upmost importance. But just as important is to have a diversified portfolio.
That’s where large-cap ETFs can really help. If an individual investor wants to diversify across and within industries, they would be looking at a portfolio of tens, if not hundreds of stocks. Picking those stocks would require a lot of time and effort, and buying those stocks one at a time would involve paying a brokerage commission for each transaction.
A large-cap ETF already contains tens and sometimes hundreds of established companies that are picked by professionals. Buying a large-cap ETF requires one transaction and the investor would be able to own shares of each of those companies in the ETF’s holding. There are many ETFs that focus on large-cap companies and there is no limit on how many ETFs an investor can buy.
But of course, there is no such thing as a free lunch. By offering investors convenience, ETFs charge a fee. Therefore, when investing in large-cap dividend ETFs, it’s important to take into account the management expense ratio (MER).
For those that are searching for “top large-cap ETFs to buy,” here is a list of 10 large-cap dividend ETFs worth considering.
Large-Cap ETF List
|ETF Name||Symbol||Dividend Yield||MER|
|SPDR S&P 500 ETF||SPY||1.92%||0.09%|
|Powershares S&P 500 High Dividend Low Volatility Portfolio||SPHD||3.12%||0.3%|
|iShares Core High Dividend ETF||HDV||3.35%||0.08%|
|ProShares S&P 500 Dividend Aristocrats ETF||NOBL||1.78%||0.35%|
|Vanguard Dividend Appreciation ETF||VIG||2.01%||0.09%|
|iShares Russell 1000 Growth ETF||IWF||1.32%||0.2%|
|PowerShares QQQ ETF||QQQ||0.95%||0.2%|
|Vanguard Growth ETF||VUG||1.28%||0.08%|
|iShares S&P 500 Value ETF||IVE||2.17%||0.18%|
|Vanguard Value ETF||VTV||2.35%||0.08%|
1. SPDR S&P 500 ETF
The S&P 500 Index serves as one of the most important benchmark indices for the U.S. stock market. It consists of 500 of the largest companies trading on the New York Stock Exchange (NYSE) or NASDAQ based on market cap. SPDR S&P 500 ETF (NYSEARCA:SPY) tracks this benchmark index.
Created in 1993, SPY ETF was the first exchange-traded fund that tracks the S&P 500 Index. In fact, it was the first exchange-traded fund in the U.S. ever and remains one of the most actively traded ETFs to this day. SPY ETF has an expense ratio of 0.0945% and is currently yielding 1.92%. (Source: “SPDR S&P 500 ETF,” SPDR, last accessed March 14, 2017.)
2. Powershares S&P 500 High Dividend Low Volatility Portfolio
An ETF that tracks the S&P 500 Index pays dividends, but its yield is currently below two percent. For investors that want exposure to large-cap companies with relatively high yields, Powershares S&P 500 High Dividend Low Volatility Portfolio (NYSEARCA:SPHD) is worth considering.
Powershares S&P 500 High Dividend Low Volatility Portfolio seeks to track the investment results of the S&P 500 Low Volatility High Dividend Index. The index consists of 50 companies in the S&P 500 that historically have provided high dividend yields and low volatility. SPHD ETF has an annual dividend yield of 3.12% and MER of 0.3%. (Source: “SPHD – PowerShares S&P 500 High Dividend Low Volatility Portfolio,” Invesco Ltd., last accessed March 14, 2017.)
3. iShares Core High Dividend ETF
Income investors wishing to boost the yield of their portfolios should also take a look at iShares Core High Dividend ETF (NYSEARCA:HDV). This ETF tracks the Morningstar Dividend Yield Focus Index. It gives investors exposure to established U.S. companies that have relatively high dividend yields.
The fund currently owns 74 stocks. Its three largest holdings are AT&T Inc. (NYSE:T), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson (NYSE:JNJ). HDV ETF has a dividend yield of 3.35% and a low expense ratio of 0.08%. (Source: “iShares Core High Dividend ETF,” iShares, last accessed March 14, 2017.)
4. ProShares S&P 500 Dividend Aristocrats ETF
If a company has raised its dividend payout every year for at least 25 years, it gets the title of “dividend aristocrat.” Even though the dividend’s history does not guarantee its future performance, investing in companies with solid track records of dividend hikes could be rewarding.
ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) was created to track an index that focuses purely on dividend aristocrats: the S&P 500 Dividend Aristocrats Index. The fund is currently yielding 1.78% and has an expense ratio of 0.35%.
5. Vanguard Dividend Appreciation ETF
Before a company becomes a “dividend aristocrat,” it has to first earn the title of “dividend achiever,” which requires 10 years of consecutive dividend hikes. And Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) provides a convenient way to invest in dividend achievers.
This dividend-paying ETF aims to track the performance of the NASDAQ U.S. Dividend Achievers Select Index. It has a dividend yield of 2.01% and a low expense ratio of 0.09%. The fund owns shares of some of the most established companies, with its top three holdings being Microsoft Corporation (NASDAQ:MSFT), Johnson & Johnson, and PepsiCo, Inc. (NYSE:PEP).
6. iShares Russell 1000 Growth ETF
Larger companies are not known to offer the greatest growth prospects, but that doesn’t mean investors of large-cap ETFs can’t find growth. For instance, iShares Russell 1000 Growth ETF (NYSEARCA:IWF) is an ETF designed to give investors exposure to U.S. companies whose earnings are expected to grow at an above-average rate relative to the market.
IWF ETF seeks to track the investment results of the Russell 1000 Growth Index. The fund currently owns 609 stocks, with the largest three sectors being information technology, consumer discretionary, and healthcare. It has a management expense ratio of 0.2% and a dividend yield of 1.32%. (Source: “iShares Russell 1000 Growth ETF,” iShares, last accessed March 14, 2017.)
7. PowerShares QQQ ETF
PowerShares QQQ ETF (NASDAQ QQQ) is an ETF based on the NASDAQ 100 Index. The index includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ Stock Market based on market capitalization. In most times, this ETF consists of all stocks in the index, giving investors full exposure to the largest companies on NASDAQ. QQQ ETF has an expense ratio of 0.2% and an annual dividend yield of 0.95%. (Source: “QQQ – PowerShares QQQ,” Invesco Ltd., last accessed March 14, 2017.)
Large-cap stocks are not known for making big moves, but this one has been special. Year-to-date, QQQ ETF has returned 11.08%, making it one of the best-performing large-cap growth ETFs in the market.
8. Vanguard Growth ETF
Vanguard Growth ETF (NYSEARCA:VUG) seeks to track the performance of the CRSP U.S. Large Cap Growth Index. The fund currently holds 325 stocks, with the largest sectors being technology, healthcare, and consumer services. It currently has an annual dividend yield of 1.28%. (Source: “Vanguard Growth ETF,” The Vanguard Group, last accessed March 14, 2017.)
The thing that makes VUG ETF stands out is its low fees. At just 0.08%, Vanguard Growth ETF’s expense ratio is 93% lower than the average expense ratio of funds with similar holdings.
9. iShares S&P 500 Value ETF
Because large-cap stocks are considered to be more stable and more durable, some investors are willing to pay a premium for them. Fortunately, for value-conscious investors that want exposure to large-cap stocks, there are ETFs specifically designed for them. iShares S&P 500 Value ETF (NYSEARCA:IVE) is a good example.
iShares S&P 500 Value ETF seeks to track the investment results of the S&P 500 Value Index. It gives investors exposure to large U.S. companies that are potentially undervalued relative to their peers. The fund’s portfolio has a price-to-earnings (P/E) multiple of 18.51 times, which is considerably lower than the S&P 500’s currently P/E ratio of 26.55 times.
This large-cap value dividend ETF has an expense ratio of 0.18% and an annual dividend yield of 2.17%. (Source: “iShares S&P 500 Value ETF,” iShares, last accessed March 14, 2017.)
10. Vanguard Value ETF
Vanguard Value ETF (NYSEARCA:VTV) is another value-driven large-cap ETF. The fund tracks the performance of the CRSP U.S. Large Cap Value Index. The ETF follows a passively managed, full-replication approach and currently has 324 stocks in its holding.
With an expense ratio of 0.08%, VTV ETF provides investors a cost-efficient way to match the performance of many of the largest value stocks in the U.S. The fund has an annual dividend yield of 2.35%. (Source: “Vanguard Value ETF,” The Vanguard Group, last accessed March 14, 2017.)
Final Thoughts on Large-Cap Dividend ETFs
While large-cap dividend-paying ETFs can be great, they have their limitations. For instance, investors that have higher risk tolerance and want more growth potential may want to consider adding some small-cap dividend ETFs to their portfolio. At the same time, gold ETFs may help investors preserve wealth during times of inflation and political uncertainty. Just like making any type of investing decision, choosing the right dividend ETFs requires an evaluation of your own goals and risk profile.