Vanilla Dividend ETFs
This is part two of the series. In part one I talked about non-dividend holdings in our portfolio. Those make up about 9.21% of our total investments. This time I just want to focus on the “vanilla” Dividend ETF investments. In other words, they are the funds with the least risk.
The four funds that fall into this somewhat artificial category are DGRO, SCHD, SPYI, and VYM.
Rather than ramble, I think some images will help to see some significant advantages for these funds. Anytime you invest you should know the cost of the investment, total returns, quality, dividend characteristics, and the “concentration and risk” factors.
Expense Ratio
I always consider the expense ratio and generally prefer funds that charge no more than 0.10% of assets. SPYI falls outside of that, but their yield is better too.
Total Returns Matter
Total returns are the combination of price returns (price appreciation or decline) and dividends. Many investors don’t understand the power of increasing dividends.
Quality Matters
Seeking Alpha helps me identify ETFs with attributes that are likely to improve my returns and income. Notice the risk elements are B+ or better. That is due to diversification and the reality that dividend investments tend to be less volatile. Dividend investors are not usually fickle investors.
Dividend Characteristics
My “Easy Income Strategy” looks for investments that increase the dividend annually. When this happens, income increases without any additional work. You won’t find that in Money Market funds, CDs, or bonds.
Concentration and Risk
In theory, the more holdings a fund has, the less risk is involved. If a fund has 100 or more holdings, no single investment is likely to create havoc for the price of the shares or for the annualized dividend and dividend growth.
My Spreadsheet
The following spreadsheet image shows all of our current “vanilla” dividend ETF investments. As you can see, the total dollars invested in the four ETFs is about $558K and that is almost 15% of our total holdings. If you have a smaller account balance, more of your total holdings should be in low-cost mutual funds and/or low-cost ETFs.
The next image moved the positions into an Excel pivot table to summarize by ticker symbol. That table is used to create a graph. I should mention that I trade covered call options on some of our DGRO, SCHD and VYM holdings. If the shares are called away I will use the cash to purchase more shares of a similar fund or will use the cash for cash covered put option trades.
Summary
Don’t get hung up on trying to mimic my percentages. You might be better served to have a higher allocation of SCHD or DGRO shares. In other words, don’t feel compelled to have 65% of your ETF dollars in VYM. SCHD has a better yield and better five-year dividend growth path.
I welcome questions and comments. They help me understand the needs of my readers.
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