The S&P 500 (SPY) finished 2022 down 18%, its worst year since 2008. If you were overweight in tech, growth, high beta or small-caps or high beta, your portfolio’s performance was likely even worse. If your portfolio was tilted towards dividend stocks, you didn’t do nearly as bad. The WisdomTree U.S. Total Dividend ETF (DTD), a proxy for all dividend payers, lost a mere 4% last year. The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) did slightly worse, losing a little more than 6%. The Vanguard High Dividend Yield ETF (VYM) actually managed to finish the year flat.
While 2022 was a painful year all around, it was a good reminder that the markets aren’t always about tech and growth. Dividend stocks may not be nearly as sexy, but they are still a great way to build slow, long-term growth. Economies where the cycle is maturing or declining can be good opportunities for more defensive strategies, such as dividends, low volatility and value, to demonstrate their worth. Even though there weren’t positive returns, dividend stocks did a great job in limiting downside.
But not all dividend ETFs lost money in 2022. In fact, 15 of them posted positive returns. It won’t be surprising that high yield funds claim the most spots on the top performer list since this was easily the best performing theme of the year. Strategies that combined high yield with a low volatility factor also did quite well by combining two of 2022’s winning themes into one. Most of the ETFs appearing on the list tilt heavily towards large-caps, but there’s a few international, ESG and mid-cap names sprinkled in there as well.
Here’s the list of the best performing dividend ETFs of 2022.
There are a number of well-known dividend ETFs cracking the top 15 as well as funds that have been highlighted in this space several times. The year’s best performer was the WisdomTree U.S. High Dividend ETF (DHS). This fund in unique in that it’s part straight high yield and part multi-factor strategy. It uses WisdomTree’s preferred weighting methodology – allocating according to aggregate cash dividends paid and not pure dividend yield – but tilts those weights according to relative value, momentum and quality.
Among this sector’s heavyweights on this list are the iShares Core High Dividend ETF (HDV), the iShares Select Dividend ETF (DVY) and the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD). All three use high yield as at least part of their strategy. HDV is more of a pure yield play, although it does screen for dividend sustainability. DVY looks for high yielders with a longer-term track record of dividend payouts and dividend growth. SPHD is one of those funds that combines high yielders from the low volatility stock universe. SPHD has long been one of my favorite dividend ETFs, but it’s historically been a real boom/bust opportunity. When conditions are in its favor, as they were in 2022, it’s often been among the best performers in this group.
The Invesco High Yield Equity Dividend Achievers ETF (PEY) is one I’ve stumped for often. Dividend growth is a great long-term strategy to use in a portfolio, but the problem is that many of these stocks offer paltry yields. PEY tries to solve this by targeting only the highest yielders within this subset. Its current yield of 4.2% is more than twice the 2% yield of NOBL.
The Pacer Global Cash Cows Dividend ETF (GCOW) deserves a mention here. Not only has Pacer been one of the ETF industry’s biggest success stories in 2022 thanks to the continued emergence of the Pacer U.S. Cash Cows 100 ETF (COWZ), the issuer has developed a pretty good dividend fund as well. GCOW follows the same strategy that targets companies with the biggest free cash flow yields, but expands beyond just the U.S. to build its portfolio. Pacer has developed a fantastic lineup of ETFs over the past few years.
WisdomTree’s two Japan ETFs – the WisdomTree Japan Hedged Equity ETF (DXJ) and the WisdomTree Japan Hedged SmallCap Equity ETF (DXJS) – made repeated appearances in the monthly top performer lists. The biggest key to the success of these two funds in 2022 was that they were currency-hedged. The yen lost more than 12% against the dollar last year and would have been a killer had these funds been currency exposed. The hedge allowed for just the performance of the portfolio itself and it ended up doing quite well.
The 2nd half of the top 30 list has just as many familiar names. The State Street duo of the SPDR S&P Dividend ETF (SDY) and the SPDR Portfolio S&P 500 High Dividend ETF (SPYD) are two of the 12 largest dividend ETFs out there combining for more than $30 billion in total assets. SPYD simply grabs the 80 highest yielding stocks from the S&P 500, so it’s as pure of a high yield play as you’ll find. SDY starts with a universe of stocks from the S&P 1500 that have raised their dividends for at least 20 consecutive years and yield-weights the qualifying names. Like PEY, SDY is a nice combination of dividend growth and high yield.
The iShares Asia/Pacific Dividend ETF (DVYA) is one of the few international-only funds on this list, but I think it could be one to watch in 2023 as well. International stocks outperformed the S&P 500 by a sizable margin in the 4th quarter and are long overdue for an extended stretch beating U.S. stocks. Not only has the falling dollar added another tailwind to this group in addition to very cheap valuations, yields on funds, such as DVYA, are now in the 7-8% range. International dividend ETFs should provide some intriguing yield/growth combinations for the coming year.
The VictoryShares U.S. Large Cap High Dividend Volatility Weighted ETF (CDL) is another fund I’ve mentioned a few times in 2022, mostly in tandem with its sister ETF, the VictoryShares U.S. Equity Income Enhanced Volatility Weighted ETF (CDC). Of the two, I prefer CDC, although its dynamic weighting strategy didn’t really work in 2022. Over time (in other words, when stocks and bonds aren’t both falling 20% in the same calendar year), I think CDC’s strategy will ultimately outperform CDL and remains my preferred choice.
Even though NOBL narrowly missed this year’s list, its mid-cap counterpart, the ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL), did make the cut. Small- and mid-caps did outperform the S&P 500 by a small margin in 2022, so it’s a little surprising we don’t see more dividend ETFs from this area making the top 30 list.
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