Mailbag: Are There Dividend ETFs Out There That Are Worth It?

I got quite a few notes in the mailbag last week. One that piqued my interest was from JT who asked if there are any ETFs or mutual funds that have a dividend investing philosophy similar to mine.

Many of you know I’m not a fan of funds in general. The whole point of a basket of stocks is to spread out the risk. That means at any point in time we can expect some of the stocks to be going up and some of them to be going down. The end result can be lower returns than if you just picked a handful of high-quality stocks.

I tend to use funds when they allow me to invest in something that is otherwise difficult or cumbersome. For example, in Essential Income we’ve used an ETF to gain exposure to the lithium and battery industry. Many of these companies are not based in the US and it can be difficult to buy foreign shares. An ETF made that easier and we were able to lock in a total return of 56%.

My Essential Income Strategy

My strategy is based on three different types of dividend stocks split into two portfolios.

The Core portfolio is one that you could essentially set and forget. It’s made up of Income Generators and Wealth Builders. If you think about it, those are the two tasks of your investible dollars. It should either be generating some kind of yield, aka income for you now, or it should be hard at work compounding for future use.

These are stocks that I plan on holding for years or maybe even decades to come.

The Opportunity portfolio is a bit more speculative. I usually put some air quotes around speculative when talking about this portfolio. It’s definitely the more active part of the two portfolios, but I don’t want to take on a ton of risk. These are stocks that have a specific catalyst for growth right now. And they pay out a dividend while my theory plays out.  

For example, we added Chevron (CVX) to this portfolio at a great price before investors properly priced in the Hess acquisition. Now, we’re sitting on an even bigger gain because of geopolitical events in 2026.

We have three distinct things happening in my strategy that allow for the adjustment of both risk tolerance and time horizon. As far as I know, there is no fund putting the income generators, wealth builders, and speculative dividend opportunities together like I do. But still, the question prompted me to take a look at what is out there.

The Frontrunner

The Schwab U.S. Dividend Equity ETF (SCHD) is the biggest and most popular dividend ETF. It’s seen over $20 billion in inflows so far this year pushing total assets to a whopping $113 billion. Shares of SCHD are up 19% year to date beating the S&P 500.

This tells me that SCHD is likely being used as a hedge against tech. No one wants to admit that we’re probably in a tech bubble—but investors are clearly adding SCHD to their portfolios right now. That doesn’t necessarily make it a good investment.

When a fund interests me, there are specific things I look for starting with the fund’s objective.

SCHD’s goal is to track the Dow Jones U.S. Dividend 100 Index as closely as possible. That Index measures the performance of 100 high-dividend-yielding US stocks. Okay, that sounds like something we could be interested in, so I head over to the fund’s top holdings to make sure they match that goal.

The best place to find a fund’s holdings is on its official page. I usually take a look at the top 10 or so, and here they are for SCHD:

These are all big-name companies that aren’t going anywhere any time soon. All of their dividends should be safe for many years to come. The big red flag for me is that some of these companies don’t pay very high dividends. Qualcomm and Texas Instruments have annual yields of just 1.9% and 2.1%, respectively.

Now, that’s the current yield. I don’t know what the fund’s effective yield might be on these shares… but I’m starting to doubt the yield being generated here. This is evident in the dividends being paid out to shareholders. SCHD’s trailing twelve-month dividend yield is just 3%!

That’s just not enough yield when short-term Treasuries are offering around 5%. And it’s less than half the current yield of the buy-rated positions in Essential Income’s Core Portfolio.

So, I decided to specifically search for high-yield dividend ETFs.

Two Solid Choices

It’s worth noting that I’m skipping the income ETFs that use an options strategy. I’ve covered them before but I was looking for more pure dividend focused funds. Here’s what I found.

Global X SuperDividend U.S. ETF (DIV) invests in 40 of the highest dividend paying equities in the US and has made monthly distributions for the last 13 years. Its last payment of $0.1060 is an annualized yield of 6.6% at current prices.

DIV’s top holdings are more in line with its “highest dividend” goal and annualized yield. I also like its low expense ratio of just 0.45%. This is the amount charged for administrative costs and managing the fund. Generally, I don’t want to pay more than 1%.

I never want to overpay, especially for a fund, and DIV is trading at exactly its NAV (net asset value). Global X also has a Global version (SDIV) if you’re looking for exposure to dividend stocks outside the US.

Alerian MLP ETF (AMLP) offers exposure to energy infrastructure through master limited partnerships (MLPs). I love MLPs, but they come with cumbersome tax forms and implications. Using a fund is a great way to get exposure to MLP’s above average yields without the tax reporting headache.

AMLP pays quarterly instead of monthly. Its latest payment of $1.03 is an annualized 7.7% yield at recent prices. Operating expenses for the fund are about 1% and it currently trades right around NAV.

To answer JT’s question, you’d have to invest in several ETFs to match my strategy. But I do think both AMLP and DIV are solid ways to add dividends to your portfolio. And remember, before you add any fund to your portfolio, always review its objective, top holdings, and the expense ratio that the managers are taking off the top.

For more income, now and in the future,

Kelly Green