ETF Battles: Dividend Safety? Watch SCHD vs. DIVB vs. SPDG!

in the future lower Equity returns could be in the cards that means the role of dividends will no doubt become an important component maybe even a forgotten component that will be rediscovered in future returns in the ETF Market funds focused on dividend income is still one of the largest categories by both assets and just sheer Choice today's audience requested triple headers between dividend ETFs from Black Rock Charles Schwab and State Street Global advisors it's a heavyweight dividend ETF bout stick around a cordial welcome to all you're watching ETF battles and here we are in season 6 I'm Ronda legi the chief culprit of this madness and if you'd like to send us an ETF battle request I encourage you to do that do so in the comment section below send us your ETF ticker symbols we could do double triple and quadruple headers you can also hit us up on our X feed at ETF guide also be sure to check out our season 6 playlist to make sure that the ETF battle requests that you're making are for contests that we have not yet already done also visit the description section below I've got links to our program judges along with our program sponsor Direction so don't be a stranger we've also got viewer Resources with download links to free audio and ebooks and other goodies so again hit that description section below so today's heavyweight triple header divon and ETF bout was requested by a viewer named sandp and he submitted this to us on our X feed it's between dividend ETS from um from Black Rock Charles Schwab and State Street Global divb as THD and spdg boy this looks like a good one thank you so much sandip for this uh ETF request helping us to sort through the Clutter is a Duo extraordinaire we've got Tony Dong with h ETF Central joining us as well as Mike Akens at ETF action judges great to see you again good to be back Ron thanks for having me so our four battle categories are cost exposure strategy we've got performance and yield combined and then we've got our mystery category where you are Judges can shock us with that factor or thing that you feel is crucial to today's contest our judges can also nominate Wild Card ETFs if they like something else somewhere else better uh they can also opt for split decisions is entirely up to them I've got the scorekeeping duties and at the end of the program we will declare an overall winner always keep in mind that none of the battle outcomes on this program are ever predetermined or known in advance by myself or our judges so let's kick things off with the first category cost Tony please get us started so all three of these are lowcost index tracking products um they belong to for I shares the core lineup and for State Street the portfolio lineup whereas SD well most TRW ETFs are cheap uh so DB and spdg both charge five basis points andd charges 6 in terms of spread SD has the lowest one with divb in the middle and SPD on the higher end it's not as traded frequently even though the underlying is fairly liquid when you put the two together it's pretty much divb that eeks out the others but I want to stress that it's by a very very slim margin and all three of these are so cheap that unless you have like seven figures in them I really wouldn't worry about expenses here Mike you're up next how do you see it when it comes to cost yeah I'd even say eight Figures it's that close um I mean we're talking nothing five basis points and six basis points expensive ratios is what makes me love the ETF marketplace right you're getting Diversified exposure to a lot of great companies um in a tax efficient way for almost nothing it's fabulous it's why the ETFs are taking over the world and I love to see it so I don't really have much to add Tony did a great job explaining it just keep in mind with spdg newer little bit little less AUM therefore a little less volume spreads are pretty tight doesn't surprise me coming from a great provider like State Street but you need to be a little bit careful or trading that strategy because you could run into some liquidity issues get a bad execution and then of course your expense ratio your total cost goes up quite a bit um that's all I got oh a winner can't do it between DB andd I'll just call it a toss up all right that takes us next to exposure strategy Mike you're still up so break it down for us wow um so just exposure wise these three products are incredibly close um they look a lot alike when you break it down by market capitalization when you break it down by size and style uh even sectors um pretty close um across the board strategy wise um you know you really have three kind of unique ways to go about it spdg is going in there and it's looking for yield on a sector by sector basis and it's going to select companies that have a higher yield than the kind of mean uh yield of each sector um and then it's going to wait in a neutral component to the S&P um 500 so what's great about that is a lot of times dividend strategies you can get really overweight defensive and as we know the market itself is really overweight uh growth whether it's Tech or um you know what what have it consumer discretionary so that's going to give you a more market-like return with with a little bit more yield uh divb is again it's it's a very core product they call it dividend core for a reason because it's market cap weighted so they're going in there and looking for the yield products but then market cap waiting it which gets it to look a little bit more like the market Schwab is the one that's going to use the most fundamental here and historically that's done really well for it up until this last year we kind of had a roll over in some of those quality factors and I'll get into that in performance uh but Schwab's taking in a number of factors um thinking about quality of the balance sheet and then going after yield after that from a pure dividend play here um and thinking about why you use dividends and I think of dividends being used to provide um mature companies that can provide a consistent dividend have strong you traditionally have strong balance sheets um and then that extra yield um is going to reward an investor over time kind of that value tilt I give it to SCD even though it's had a tough run here over the last year um but I like all three strategies but my winner ISD because it's more of a fundamental Choice uh approach to it whereas um spdg and BB are going to be a little bit more market cap Centric solid analysis thank you Mike Tony you're up next how do you see it between these two ETFs it it's really going to depend on your views for a sectors so if you're the kind of person that is going is going to Panic or worry when your dividend ETF diverges marketly from the market due to like as Mike mentioned severe sector imbalances spdg is probably the best one the sector neutral strategy means that this one is going to have approximately the same sector allocations as S&P 500 so those overweights to financials Tech uh Communications and of course it's not just a pure uh yield play to you have a screen that ensures is at least seven consecutive years of uh dividend payments or increases divb is a little more complex and I say that because it's its index has changed quite frequently the last time was in December 2022 and what they did was that morning star placed a higher weight on dividend so 75% and just 25% on buyback so it used to be more balanced as a composite measure of shareholder yield but they've deemphasized BuyBacks and in addition they increased the UN for the highest yielding stocks to uh 50% instead of just from the top 90% so what that did was that restricted a lot less to just you know the highest yielding ones and another thing that they implemented that I do like is that they began uh excluding stocks with dividend yields in the top 5% of the market and that's something that you see a lot of the top dividend ETFs do and this just kind of gets rid of your yield traps very efficiently and simply uh SD on the other hand is one of these like very complex index ETF that I like because they give you exposure to a very rigorous and systematically implemented strategy at a low cost so you know there's the 10 years of consecutive dividend payment screen and then it gets weighted on four fundamental factors uh free cash flow to total debt return on Equity indicated dividend yield and five-year dividend growth rate and then that gets parred down to 100 stocks it reconstitutes every year if I had to take a high level overview of all three of them I'm still going to go with SCD just because I I believe the index methodology is very solid it's been executed consistently and unlike divb you know there hasn't been like changes after the fact by the index provider and then you can also go on their site and look at the methodology and the back test and I think it's very sound even though it had that hiccup uh one thing to not is that shd just reconstituted this year and then we're seeing a lot higher waiting towards uh energy and I think that's appropriate just given the high free cash flow yield of that sector the high dividend yields and also the lower valuations so shd all the way from me very good and just explain to our audience real quick when you said reconstituted some of our audience members may not be familiar with that what does that mean so reconstitution event is when the index uh basically goes through its criteria every year or every quarter to add and drop companies so rebalancing is when they don't add or drop anything and they just you know reorganize what's in there according to the uh the waiting methodology but reconstitutions when you'll see new companies enter shd and old companies leave and if you're interested and seeing uh you know what the ETF has added and what it's kicked out you can find that usually on their web page there's a re annual reconstitution report and there's a variety of other analysts that will go in detail about what's changed but uh this time we've seen that you know compared to what happened last year shd is less heavy in financials now more heavy in energy and I think personally that's a much better tilt got it thank you for that added detail Tony that takes us next to Performance and yield and we've got this combined of course being a dividend bout we had to include yield so Tony you're still up break it down for us how do these three ETFs compare yeah so the the back T is kind of limited by spd's uh you know newer Inception but from 2023 September to present uh DB's done the best at uh a annualized 19.78% draw Downs are all very similar too and this is you know where you'll see the benefits of spg's approach when it comes to sector neutral you're not making these big sector bets that can really derail like your thesis instead it's going to be up to security selection within the sector and if you're a fan of the dividend growth and the dividend yield above the median screen that's going to do well for you uh now in terms of yield divb is going to be the lowest ever since they updated that methodology in 2022 the yields Fallen um just because the universe that they're selecting from isn't as high as yielding and they got rid of that top 5% on a 30-day SEC yield you're getting 2.84 from divb uh SD's yield has always been excellent right now it's uh 3.71 but surprisingly spdg isn't that bad I don't have it up right now but I remember it's somewhere north of 3% um so to put it all together I would say that historically yeah shd has kind of been a dog recently but for the future I I am very very much confident that on a total return basis SCD will do very well and better than the large cap um large cap pure category average and I think the yield is will continue to be good it's actually increased significantly since uh this month last year round excellent analysis thank you Tony and I also like the fact too that our uh judges when considering performance and yield aren't just looking at the B backwards exclusively but they're also thinking about what potentially could and might happen in the future and I think again we need to do that as investors we tend to be so focused on what happened in the past so thank you uh Tony for doing that uh Mike you're up next break it down for us on performance and yield so yields uh gonna be far in away CHD I mean it's got the most targeted component to actually achieve that um as a result it has a much higher yield so if you're looking for that qualified dividend income um and something you can just get that cash flow out ofd is going to provide them a much higher yielding there too they all yeld nicely above the market though so they all got a yield component they've all got a great value tilt which and I think of yield I think value it's generally one of your kind of your value factors in it um SCD had a rough year last year and it's kind of messed up its one three five year numbers um historically it's been a great strategy I believe in it going forward just like Tony does um but it does highlight what can happen um with only reconstituting a portfolio once a year um market dynamics can change very quickly and cause your screens to be very different one month to another um and you might end up screening um something very differently and you can really see it if you go and look atd's rebalance you can see it take huge haircut from Tech um on its last rebalance a huge haircut and financials into a couple of other sectors it may prove out to work out really well the years got a long ways to go um so I I still has great fundamental factors in there but just something to keep in mind relative to like how these strategies work you know if it is passive um the timing of those rebalances can make a big deal and there's been a couple of great articles written about rebalancing luck when you do your rebalance was it the right time to do it and how it can affect performance with these passive strategies all said and done uh looking forward I still like SCD though I will tell you if you're looking for a core position you want a core position maybe with a little lower volatility a little higher yield the spdg even though it's new I would expect it's going to provide very closer returns to the S&P 500 because of that the way it weights around the sectors um and get you a little bit more yield a little bit bit more um maybe quality slash um value component so growth at a reasonable price so I like that it's too young for me to really know what's happening there so I'm going to stick with SD um and then div divb is a great strategy but I don't like the market cap waiting component of how they they manage that strategy all right well that takes us next next to the mystery battle category where our judges can pick a single or multiple factors that they think are important to today's contest so Mike what is your mystery B category and which of these three ETFs wins it yeah so let's talk little active passive um my mystery here is I think we have to recognize that I think as a as an industry embrace the fact that some of the largest um most well sourced um investment firms out there like tro price John Hancock are coming to Market and embracing ETFs finally took them a while to get there but they're they're coming in and they're embracing the lower cost structure not as low as what you'd get from a pure passive strategy but under 50 basis points and you know if you apply a tax efficient active strategy with a lower expense ratio I do believe it can provide consistency um using that SD example you have the ability to kind of massage your strategy based on macro environments but you can't you really can't do that with a pure passive strategy um so I would encourage investors if you're looking at for core allocations um don't you know um completely shy away from the active front because there are a lot of great managers coming to Market here and providing very um interesting strategies very well researched strategies um you know for a very in my opinion a reasonable price and you're getting it in the great ETF rappers so that's my mystery category not going to throw out a bunch of tickers but um it's not too hard to find uh find them out there and take a look at that well I think that's the first time we've had active dividend ETFs chosen as a wild card just the the entire group so uh great great analysis Mike and you're right we're getting more more choices in the active dividend ETF space this may even promp some of our viewers to send us some ticker symbols for a future and potential ETF battle episode so great job Tony you're up next your mystery battle category what is it and which of these ETFs wins it this is a term I coined myself called continuity it's just like you know can I rely on this ETF still delivering exposure to the same strategy later and on the active side this is a risk you got to look out for called style drift uh you look at Fidelity Contra fund it started out as a contrarian fund but it turned into large cap growth to great effect I might add William danov has absolutely killed it but you know you look at you look at the name of the Strate Contra fund it was originally supposed to be a contran fund so back to this UHD is the only one I feel comfortable holding for 10 years partially because it's so massive it's just got 70 billion in assets and that's a lot of Licensing fees being paid to S&P Global for the Dow Jones US dividend 100 they're they're not going to change that index from them they're GNA they're going to keep using that and that is the index that I want to be invested in if I'm owning this ETF spdg I I love the sector neutral approach we've seen this to great effect with even ES G ETFs like SNP where they've managed to outperform the S&P 500 without those big sector deviations but like you know it's been around since September uh 2023 and it's it's tiny in size I think it has like 9.85 million in AUM so it's well below that 50 million death zone and I honestly don't know how long this etf's going to stay open for like the next strategic review at ssga they might just ask this thing because it's likely not turning a Prof especially with an expense ratio that low and as for divb just the constant changes to the index that it uses by Morning Star is just something that I'm just not a fan of like I know that they're just trying to optimize it but in my opinion the whole point of an index ETF is to just really set it and forget it and if I have to worry about how they're going to change the reconstitution criteria the selection criteria The Waiting criteria uh you might as well just go active at that point right and you know theb isn't that either at at less than a billion assets under management it's not in danger of closing down but you know the I shares ETF lineup and this is more of a meta thing the iar's ETF lineup is freaking massive right now they have so many funds and a lot of them are redundant you already have two other core dividend ETFs DG and hdv I could definitely see a scenario one day where someone there takes a look at these three and decides divb can get a and merg into the other two and we've seen it happen before with other funds they change their names the share classes get merged mer different funds get merged so again like just from a peace of mind perspective I'm going to take SCD for La run well we've had some great analysis up until this point now we're going to give our judges a final opportunity with their final say Tony give it to us SCD is one of those few dividend ETFs that I really like from both a total return and a factor perspective the index methodology is multifaceted it is rigorous it is sound and you're getting this for six basis points which is an ABS abolute steer uh steel not steer it's an absolute steel and then one thing for those of you concerned about tax efficiency is that SD's index also excludes Real Estate Investment Trust so the majority of the Dividends are going to be qualified you don't have that ordinary income to worry about unlike some dividend ETS where you know you because they don't exclude Real Estate Investment Trust you get a big dose of them because a lot of those have high yields um if I had to pick a dividend ETF to stick to and understanding that I like total returns better I would not mind owning this one Mike your final chance to win with your overall winner give it to us yeah I think we're gonna think we're going to get an agreement today it's unheard of I feel like the last several of these I've been on we've had split decisions butd is my winner and I'll give you three reasons why it is incredibly cheap and efficient to get access to these products it has a as Tony has done a much better job than I will try to repeat so save everybody some time a very fundamental uh sound process to it but number three and I I got to be honest it's truly the true dividend product of this battle it's actually going after yield it's a dividend strategy the other two don't me wrong they're there they're they're not not dividend products but this one is a legitimate yielder you know yielding almost 4% on a weighted average basis the underlying and hey this is a dividend battle so let's give it to the dividend ETF SCD well our judges have spoken and according to my final battle scorecard SCD is the winner to quote retired B basketball player rashed Wallace ball don't lie and in this contest the ball bounced in favor ofd overwhelmingly uh our judges agreed on exposure strategy performance and yield mystery the overall battle winner and they made some great points uh I think one that stuck out to me is SCD among this Trio has the most fundamental screens and for just six basis points annually uh that's quite the bargain for dividend focused ETF investors great job to both of our judges uh active dividend ETFs Mike mentioned that as a something that uh our audience should watch for I don't know maybe we'll get some future requests for active dividend ETFs audience do your homework and get back to me great job to both of our judges we couldn't have done it without you awesome thanks joh my pleasure well be sure to visit the description section below we've got links to both both of our judges to get in touch we've also got a link to our program sponsor Direction who has been expanding their ETF lineup uh We've also got uh lots of choices Beyond industry sector ETFs leveraged and adverse we've also got single stock ETF long and short so be sure to check that out as well as uh lots of freebies free ebooks and other goodies one final thing before we take off which ETF battle would you like to see on our next episode hit me up in the comment section below or on our X feed at etfguide send me your ETF tickers and make it good I'm Ronda legi thanks for watching today's contest this is ETF battles we'll see you next time