For those of you looking for lower volatility in your portfolio, but also a healthy dividend, look no further! Today we’re going to discuss 3 low volatility, high dividend ETFs which could be a good fit for your portfolio. They are:
- iShares Core High Dividend ETF (HDV)
- Vanguard Consumer Staples ETF (VDC)
- Vanguard High Dividend Yield ETF (VYM)
And as always, I stuck with low expense ratio ETFs. Let’s discuss!
Why Low Volatility and High Dividend ETFs?
Low Volatility
Low volatility ETFs are those that have lower Beta’s versus the overall market. The overall market in my analysis is the S&P 500, or an ETF tracking it like SPY, which has a Beta of 1.
A Beta is simply a measure of correlation to the overall stock market. A Beta greater than one suggests that a stock or ETF is more sensitive (and risky) to overall market movements. A Beta below one means the opposite, it has lower volatility.
Low volatility ETFs can be great for investors who are willing to sacrifice some return in exchange for more steady share prices. This may be preferred for people who are retired and need to make withdrawals. Conversely, these can be great for investors who hate seeing their portfolio fluctuate in value too much day-to-day.
High Dividends
High dividends are defined as, for this analysis, dividend yields that exceed in the market average. Once again, I will compare with the S&P 500 or SPY as the ETF equivalent.
Dividends can be a nice compliment to a lower volatility portfolio. Dividends provide a steadier stream of income that can either be reinvested, or kept and spent by the investor.
This flexibility allows you to decide what to do with the cash your investments earn, as opposed to ETFs that invest in companies that retain most or all of their earnings.
3 Low Volatility, High Dividend ETFs in 2024
Here are three ETFs that fit in the bill of low volatility, high dividend ETFs.
iShares Core High Dividend ETF (HDV)
- Net Assets: 10.27bn
- Expense Ratio: 0.08%
- Beta (3 Year Average): 0.67
- Dividend Yield (TTM): 3.73%
HDV is a very straightforward index fund ETF that tracks the Morningstar® Dividend Yield Focus IndexSM. This index targets companies that target higher dividend paying companies.
While this fund isn’t specifically designed to be lower volatility, by nature it is. Higher dividend stocks (generally) tend to have lower volatility. This is usually because they are more steady businesses that can pay consistent dividends.
Therefore, HDV is a great way to bring lower volatility and a nice dividend yield of 3.73% to your portfolio.
Vanguard Consumer Staples ETF (VDC)
- Net Assets: 6.41bn
- Expense Ratio: 0.10%
- Beta (3 Year Average): 0.63
- Dividend Yield (TTM): 2.57%
VDC doesn’t specifically target higher dividend and/or lower volatility stocks. But it tracks a consumer staples index.
Consumer staples companies are generally the most steady and reliable stocks out there. These are your Coca Cola’s, Proctor and Gamble’s, Pepsi’s, etc. of the world. They aren’t flashy, they aren’t growing exponentially, but they have consistently grown for decades.
These companies generally post solid revenue growth and positive earnings even through market downturns. This makes them great low volatility picks. They also are less likely to cut their dividends and generally pay out a solid yield.
VDC is great for an investor looking for low volatility and high dividends, but wants a more concentrated position in consumer staples.
Vanguard High Dividend Yield ETF (VYM)
- Net Assets: 50.91bn
- Expense Ratio: 0.06%
- Beta (3 Year Average): 0.78
- Dividend Yield (TTM): 3.07%
VYM is very similar to HDV, but it tracks a different index: the FTSE High Dividend Yield Index.
In short, VYM is a more diversified fund than HDV and has a lower expense ratio. However, its current yield is slightly lower than HDV and it also has a slightly higher Beta.
But for an investor looking for a slightly more diversified position, VYM could be a great investment.
Bottom Line
You should now know what a low volatility and high dividend ETF is and why it can be a good addition to a portfolio. Three great potential options for an investor could be:
- iShares Core High Dividend ETF (HDV)
- Vanguard Consumer Staples ETF (VDC)
- Vanguard High Dividend Yield ETF (VYM)
Thanks as always for reading!
DISCLAIMER – THIS ARTICLE IS NOT FINANCIAL ADVICE. THIS ARTICLE DOES NOT CONSTITUTE A BUY, SELL, OR HOLD RECOMMENDATION ON ANY SECURITY MENTIONED HERE. THIS ARTICLE CONSTITUTES MY OPINION AND NOT A STATEMENT OF FACT. ALL INFORMATION REGARDING THE FINANCIAL SECURITIES MENTIONED IS ACCURATE AS OF JANUARY 24, 2024. DO YOUR OWN RESEARCH.