What are the 5 best paying dividend ETFs?

Bryce: [00:00:31] Welcome to Get Started Investing a podcast where we attempt to answer the most common money and investing questions from the community to help us all become better investors. If you are joining us for the first time, welcome, We strongly recommend that you scroll up and start at episode one. Now, while we are licensed, we are not aware of your personal circumstances. All information on the show is for education and entertainment purposes only. Any advice is general advice only. With that said, my name is Bryce and as always, I'm joined by my equity buddy, Ren. How you going? 

Alec: [00:01:00] I'm very good, Bryce. Great to be back for 2023. 

Bryce: [00:01:03] Absolutely. 

Alec: [00:01:04] We are pretty privileged to be able to say great to be back in February. Yes, it's been a nice break.

Bryce: [00:01:09] It has been a great break. Yes, We've had some beach time, had some sun, got some big announcements coming up later in the year. And we had a great summer series where we explored some of the key sort of back to basics, personal finance topics that we know a lot of you enjoyed. And we will continue on that sort of thread this year as we attempt to answer some of the most common money and investing questions that we get from the community. 

Alec: [00:01:36] Yeah, and if you turned the stock market off over the holidays, had a break. First of all, well done. I think that was a good call. I did the same. I think going back and listening to that summer series will be a great refresher. I just was reminded and learnt so much when we did it. Like just the basics. I made some improvements into how I manage my money and I think everyone, wherever you are in your investing journey, can benefit from that. But we come back price as you said in your updated intro. We want to answer some of the most common investing questions and one that we've been hit up a few times over The break has been around dividends. 

Bryce: [00:02:16] Yes, dividends. Everyone's looking for some cash in the pocket. 

Alec: [00:02:20] That's not surprising. A lot of uncertainty going into 2023. And a lot of investors, both people like you and I, but also the professionals and the big end of town, are looking for investments that will pay them income, dividends, or if you can afford a property rental yield, rather than trying to get those, you know, big growth stories that we sort of loved in 2020, like. 

Bryce: [00:02:44] Yes. So the question we're answering today is what are some of the best paying dividend ETFs we've pulled? The top five best performing from 2022. But then more importantly, we're going to have a discussion around how you can frame and what you might look for in 2023. 

Alec: [00:03:00] Because there is a big watch out. If you had just a look at the list from 2022. Yeah, let's start there, Bryce. Let's start with the list from 2022. Every month the ASX release an exchange traded products report. So we pulled the data from December 2022 and we looked at all the ETFs in Australia. There were 13 ETFs that paid a dividend over 10%. Okay, So if you invested $100, you got more than $10 back. That's a great return. 

Bryce: [00:03:31] Yeah. And I think that's an important concept or jargon buster there. Ren which is you've said it as a percentage, but we'll use the terminology throughout this as yield and you might hear that well, well, we don't have to. But when you're looking at all of these funds on their website, when you're hearing people talk about the return that they got or the yield that is the jargon to watch out for and yield is just a word to express the return that you get. 

Alec: [00:03:58] Cash in the bank. 

Bryce: [00:03:59] Cash in the bank. It's often expressed as a percentage. All it really means is the return on the investment that you get over that 12 month period. 

Alec: [00:04:06] Yes. So we took the 13 we excluded actively managed ETFs where fund managers are buying and selling stocks throughout the year. We also excluded leveraged ETFs where they borrow money to amplify your returns because that also amplifies the dividend you paid. And we've got the top five remaining of just passive index ETFs and the dividends they paid. So for us, kick it off coming in at number five, what have we got? 

Bryce: [00:04:36] Number five for 2022 was the BETASHARES Resources Sector ETF. The ticker is Q-R-E It's listed on the ASX and it spat out a dividend yield of 14.07%. 

Alec: [00:04:49] Nice. Now I'm going to group in number four here and then we can talk about them together because number four was State Street's SPDR, S&P, ASX. Give me another acronym in that ASX 200 Resources Fund. Its ticker is O-Z-R It paid a dividend of 15.55%. So number five and number four, both resources ETFs. 

Bryce: [00:05:16] Yeah, and we know last year resources, particularly here in Australia, had a great, you know. 

Alec: [00:05:22] Everywhere in the world. 

Bryce: [00:05:24] Had a great year, You had iron ore, you had oil or what. 

Alec: [00:05:30] Go. 

Bryce: [00:05:33] All of a lot of these resources. And so a lot of the companies underlying that make up these ETFs paid out large dividends. 

Alec: [00:05:41] So these were companies like BHP, Rio Tinto, Santos, Woodside, Fortescue. Big mining and oil and gas companies that were their costs didn't change. They were still mining and extracting for the same costs, but the amount that they could sell that stuff for skyrocketed. So they are a lot more profitable last year. So they paid a bigger dividend to shareholders and then those that owned those resources ETFs saw that dividend flow through to their brokerage accounts.

Bryce: [00:06:12] Can't complain. So number three, Ren was the SPDR MSCI Australia Select High Dividend Yield Fund. I love. 

Alec: [00:06:19] The jargon. 

Bryce: [00:06:20] Yes, the ticker is S-Y-I listed on the ASX as well, and it is spitting out 16% just over 16%. So for every hundred you've got in, you're getting $16 back. 

Alec: [00:06:33] So they take the biggest companies in Australia, they run an eye over them, they say, Which ones do we think will pay the biggest dividends? And this ETF has about 35 companies in it at the moment. And some of the biggest holdings are companies like Rio Tinto, BHP, Wesfarmers, Woodside. So there are some big Australian companies that are known to pay big dividends. Yeah, and they did last year. 

Bryce: [00:06:57] They absolutely did last year, yeah. 16%, so that was number three. Ren, what is coming in at number two is the SPDR World X Australia Carbon Control Fund. It spat out a dividend of 25%, the ticker is W-X-H-G. Now you might be wondering what does this ETF do? I went and had a look at the website and it reads that it is designed to measure the performance of eligible securities from the S&P. Developed X Australia Largemidcap weighted to minimise the weighted average carbon intensity and subject to index active share, active industry, group weight and country weight constraints rights. So any idea on any idea on what that could be? 

Alec: [00:07:45] I'm still confused as to what carbon control is, let alone whatever you just read me. 

Bryce: [00:07:50] Yeah, me too. So then I had a bit of a deeper look into it, and lo and behold, the holdings are Apple, Microsoft, Amazon, Alphabet, Nvidia, Manta, Coca-Cola Visa. Right. 

Alec: [00:08:02] So it's just the biggest companies. 

Bryce: [00:08:04] Yes. So.

Alec: [00:08:04] World. 

Bryce: [00:08:05] So simplified.

Alec: [00:08:07] Yeah. 

Bryce: [00:08:08] It's companies that in in terms of this index aren't spitting out heaps of. 

Alec: [00:08:14] Carbon so it's just had like an ESG screen. Yeah. With a confusing name. 

Bryce: [00:08:18] Very confusing name. 

Alec: [00:08:19] But the other thing that confuses me, Bryce, you said 25% dividend yield. 

Bryce: [00:08:23] Yeah. 

Alec: [00:08:24] Those companies are notoriously low dividend payers like the big American tech players and stuff like that. You know, the dividend yield might be one or 2%. They're not like the Australians that pay 4% and they're certainly not paying 25%. So where's all this cash come from.

Bryce: [00:08:43] Yeah. So throughout last year they, it's, they had what looks to be like a some sort of a special dividend on average they're paying about 70 to $0.80 when they do pay per share when they distribute. In June last year they paid 4.55 a share. So a massive, massive dividend. And if and it seems like that what has happened is they've realised a whole bunch of cash and distribute that to shareholders.

Alec: [00:09:12] Okay. And if you look at their website, which I've just done while you were speaking, that now their dividend yield is listed at 1.93%, there you go. So that looks like 2022. It was a bit of an outlier and that is the key call out that we want to make. When you're looking backwards at the past years, the risk is that they may not pay that dividend the where in the years to come. Absolutely. So there's a the past performance is not an indicator of future performance. 

Bryce: [00:09:40] 100%. 

Alec: [00:09:41] Outright. And that rule holds for number one as well, which is BETASHARES crude oil index ETF, currency hedged brackets, synthetic, which paid a whopping 44.91% dividend yield. So Bryce that means if you invested $100 in this ETF, you would have been paid 44.91 in dividends last year. Huge. Unbelievable. 

Bryce: [00:10:08] Yes. 

Alec: [00:10:09] When unsustainable. 

Bryce: [00:10:10] Yes. 

Alec: [00:10:11] Yeah. And the reason that it had such a big dividend was because oil just went through the roof last year and Betashares just realised so much cash into this ETF and as part of the fund rules, they have to return that to the ETF investors. So. All that money got paid out, but oil probably peaked last year and it's come down a bit. And so you wouldn't expect this just massive flood of money to repeat.

Bryce: [00:10:42] No. And that takes us to the second half of this round, which, as you've alluded to, this is what was the result of 2022. The top two performing were also the result of all sort of one off situations and also four and five both resources in, both paying out based on what was going on in the resources market last year. If you chase that dividend yield again for 2023, 2024 and onwards, you can become you can get unstuck quite quickly because they're not likely to repeat themselves. However, there are dividend ETFs that are designed specifically to optimise for dividends. 

Alec: [00:11:21] So let's take a break and then talk about those. All right, Bryce. Well, before the break, we spoke about the five biggest dividend paying ETFs from 2022. But we want to turn to what we think are some of the best options for 2023. But before we do that, a quick reminder that we have the Equity Mates Community survey out in the field at the moment. The link is in the show notes. It's on our social media and it would be a massive help if you could fill it out. It's our opportunity to really understand who is in the Equity Mates community. What you guys want to hear, how we can help, and if there's anything you want us to stop doing as well as your opportunity to tell us. 

Bryce: [00:12:01] That's it. And you automatically go in the draw to win $500 if you complete the survey in full. We've also got a number of second and third place FinFest tickets for those that help help us find and fill out the survey. And yes, FinFest is coming for 2023. Register your interest. 

Alec: [00:12:19] And the survey like it's made a meaningful difference over the years. The first survey we did, we realised we needed to spin out, get started investing as its own show because all those different parts of our audience, we wanted to hear different types of content. Last couple of years ago we heard that you wanted more live events and that was really a key driver for FinFest. So it really does help us and it really will direct where we're going to take Equity Mates So please hit a link in the show notes and fill it out. But Bryce Let's get to some of the best dividend paying ETFs for 2023 from the ASX is monthly ETF report some interesting names in there, but our big watch out for people who are looking to invest for dividends is past performance isn't an indicator of future performance and we don't expect some of the biggest dividend payers from 2022 to be able to back it up for 2023. Absolutely. So where we wanted to go in this episode is talk about the class of dividend ETFs out there, ETFs that are specifically designed to try and maximise dividends, not just in one off years like some of those 2022 guys did that every year. 

Bryce: [00:13:31] Yeah. So we've got six here that will go through from all of the major ETF issuers here in Australia and they have similar ETFs wherever you are if you're international listeners. So to start, we've got Betashares. This is the Australian Dividend Harvester Fund, the ticker is H-V-S-T. They actually pay distributions monthly. So if you are looking to get some recurring income through the door, they pay monthly and their average yield or the average return that they're paying over 12 months is about 7%. So that's the Betashares Australian Dividend Harvester Fund. And what this fund does as most of these funds do, as Ren said, is they take what they believe to be companies that are forecast to pay dividends higher than the average market or higher than other companies listed on the Australian Stock Exchange. This is a managed fund and that's how they, I guess, create the portfolio of stocks. So that's the Betashares Dividend Harvest, a fund, a monthly distribution of roughly 7% over 12 months. Now what's the next one? 

Alec: [00:14:35] Right. So let's go to Vanguard who have the Australian shares high yield ETF. The ticker is V-H-Y they pay quarterly. So not monthly like BETASHARES around a 4.5% annual yield. Last time they paid about $0.79. So this ETF has 74 holdings and basically what it's done is taken the biggest companies in Australia and just put the ones that it expects will pay big dividends. And so some of the biggest holdings in the ETF, BHP, Commonwealth Bank, National Australia, Bank, Woodside, those big dividend paying names are top of the list. 

Bryce: [00:15:15] Nice range. So the third is iShares, S&P, ASX dividend Opportunities, SG screened ETF. The ticker is IHG listed on the ASX. All true. It has 50 companies in the portfolio, quarterly distributions, a yield of six and a half percent. And as you find the holdings are all very similar to the one that Ren ran, just read out CBA, BHP, NAB, Rio, Westpac, all the big banks and resource companies here in Australia.

Alec: [00:15:47] I hope at this stage you're starting to hear the theme. There's a little bit of repetition as you can probably expect, and that's to be expected because all of these ETF issuers want to issue a dividend product, but they're not massively different. ETF, the ETF companies are going to be annoyed that I said that because they all have their nuances and they all have their differences. They all own slightly different things. They all have slightly different management fees, but a lot of the companies they hold, there's a lot of the Venn diagram certainly overlaps, so we put it that way. The next one that we've got on the list is from State Street or SPDR. They have. The MSCI Australia Select High Dividend Yield Fund. The ticker is S-Y-I yield last year 7.2%. And would you believe it? Similar fund rules, similar fund holdings. 

Bryce: [00:16:37] We've got a couple that are slightly different to close out. I've got one from Global X and theirs is called the Super Dividend ETF. Now this is listed in the states S-D-I-V it has monthly distribution and it has a yield of 13.2%. So the highest of all, all of the ones that we've just recently gone through. But its top holdings are very different, listed over in the States. BW LP is the top holding Imperial Brands, Platinum Asset Management and a whole by a whole bunch of other companies Omega Healthcare, Apollo Commercial. So a number of international companies that are paying dividends compared to those here in Australia. So that's for an international focussed Global X super dividend ETF.

Alec: [00:17:22] I saw that. And then the last one, which is also a little bit different Vaneck Morningstar Australian Moat Income ETF. The ticker is D-V-D-Y. Now, VANECK is the ETF issuer, Morningstar is the research house and they've come together to create this ETF. It uses Morningstar's moat ratings. They analyse companies and give it its like out of five stars, isn't it out of their motors? And so they've applied that firstly. Well, companies have moats and then also what companies pay good dividends. And so the holdings do look a little bit different. Don't worry Bryce there is still some overlap, if you will, worried that Commonwealth Bank, Wesfarmers, National Australia Bank or ANZ Group weren't in the top ten. You don't need to worry because they are. But there are some differences. Pinnacle Investment Management is the biggest holding. Lovisa Holdings is the second biggest. Does Jumbo interactive interactive does NIB my health insurer? Yes, NAB and there's a few other different companies in there as well so slightly different but again very similar aim Find Australian companies paying big dividends, jam them into an ETF there.

Bryce: [00:18:36] The biggest takeaway here is that there are ETFs designed to optimise for dividend payments. A lot of people do use them as part of their portfolio. As you've heard here, some of them do pay monthly distributions which are if you're looking for income, regular income, then they could be a product for you. But as you've also heard, most of the major issuers have a dividend product, so do your own research.

Alec: [00:19:01] And so to put a bow on this episode and to answer the question that we really set out to answer here, what are some of the best dividend ETFs for 2023? Don't just look at those that paid the highest dividend in 2022. Instead, look at what the fund is set up to do, look at its objectives, look at how it invests. And as we went through that list there, all of the major ETF issuers have funds specifically designed to pay you dividends. It may not be the 44% that Betashares paid from their oil ETF in 2022, but it's designed to be more than just a flash in the pan in one year and to consistently pay dividends. 

Bryce: [00:19:40] All around will. That brings us to the end of our first episode for 2023 back in the studio, and I can't wait to unpack many, many more questions that are coming from the community to help us all become better investors. So we'll leave it there and pick it up next week. 

Alec: [00:19:53] Sounds good.