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If you want to buy and hold dividend ETFs that won’t disappoint you over the long run, it’s a good idea to look at iShares Select Dividend ETF (NASDAQ:DVY), Amplify CWP Enhanced Dividend Income ETF (NYSEARCA:DIVO), and Vanguard Dividend Appreciation Index Fund ETF (NYSEARCA:VIG). They have the characteristics to get through the harshest of recessions and recover. The current environment gives you the perfect opportunity to rotate into them before things potentially get worse.
Many dividend investors are exposed to tech more than they realize, thanks to options ETFs. They promise you double-digit yields with partial exposure to big-name indices. If the market does go through a correction in the near term, it will be a tall order for these ETFs to recover their losses, as they are often fully exposed to downside risk.
Buying alternative ETFs like the following three can add much-needed ballast.
iShares Select Dividend ETF (DVY)
The iShares Select Dividend ETF tracks the Dow Jones U.S. Select Dividend Index. This gives it exposure to U.S. stocks with relatively high dividend yields and a history of increasing dividend payments. It is passive and holds 100 stocks.
It has the most exposure to the utilities sector at 26.82%, with the biggest holding having a weight of just 2.64%. DVY has gained 5.62% year-to-date without counting the dividends and has lagged the broader market in recent years due to the tech rally. That said, if the rotation out of tech stocks continues, DVY can appreciate a lot more.
The utilities exposure can be a strength in the coming years. Utilities are more insulated from tariff risks and recessions, while also benefiting from increasing electricity demand and oil & gas exports.
DVY comes with a yield of 3.5% and an expense ratio of 0.38%, or $38 per $10,000 invested.
Amplify CWP Enhanced Dividend Income ETF (DIVO)
While many ETFs fully lean into options for double-digit yields, this one does something different. The Amplify CWP Enhanced Dividend Income ETF is actively managed and holds 20 to 25 stocks at any given time. The objective is to use a portion of these holdings to sell covered call options.
Unlike most other covered call ETFs, DIVO relies on options conservatively. It derives a smaller yield from these options, but it does not face the same pitfalls.
For example, an ETF like the JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) has done worse than DIVO despite having a higher yield. This is because the upside is too constricted by the aggressive options strategy. Each time the market pulls back, it is an uphill battle for JEPI to break even.
Dividends reinvested, DIVO has returned 108.6% compared to JEPI’s 80.46% since JEPI’s inception on May 5, 2020.
DIVO has a dividend yield of 4.6%, with a monthly payout frequency. The expense ratio is just 0.56%, or $56 per $10,000.
Vanguard Dividend Appreciation Index Fund ETF (VIG)
The Vanguard Dividend Appreciation Index Fund ETF is great to have if you are looking to hold for the next 5 years. Even if the market rotates into defensive stocks in the near term, the long-term tech rally can still continue due to AI breakthroughs by then.
VIG tracks the performance of the S&P U.S. Dividend Growers Index, which leans a lot into tech companies that are growing their dividends aggressively. The underlying index starts with stocks from the S&P U.S. Broad Market Index, excluding REITs, bankrupt firms, and illiquid stocks, then selects those with a 10-year history of rising dividends. It eliminates the top 25% highest-yielding eligible stocks (or top 15% for existing holdings) to avoid financially unstable companies likely to cut dividends.
VIG has gained 9.8% year-to-date, with the top holding being Broadcom (NASDAQ:AVGO) at 7.18%. The second biggest is Microsoft (NASDAQ:MSFT) at 4.79%, followed by Apple (NASDAQ:AAPL) at 4.2%, JPMorgan (NYSE:JPM) at 4.01%, and Eli Lilly (NYSE:LLY) at 3.19%. There are 341 holdings, so it’s well-diversified despite the tech exposure in the top 5.
VIG has a yield of 1.65% and an expense ratio of 0.05%, or $5 per $10,000. If you want a lower-risk way to get tech exposure while being paid slight dividends, VIG is worth looking into.