3 Of The Best Dividend ETF(s) On The ASX Compared in 2022 (VHY vs IHD vs RDV)

In this article, I’ll be getting under the hood of 3 of the Best Dividend ETF(s) listed on the ASX.

Specifically, I’ll be reviewing Vanguards Australian Shares High Yield ETF (ASX:VHY), iShares Dividend Opportunities ETF (ASX:IHD) and Russell Investments High Dividend Australian Shares ETF (ASX:RDV) for all of you investors out there looking to boost your dividends cheques.  

Who doesn’t love a little extra passive income, right?

Before reading any further, please ensure you’ve read and clearly understand my financial disclaimer located at the bottom of this post.

Why I’m Reviewing VHY, IHD & RDV

VHY, IHD, and RDV are the largest 3 of the 6 Passive high-yield focused ETFs listed on the ASX in terms of fund size. Their popularity amongst ASX investors is the reason I’m choosing to review VHY, IHD and RDV in this article. 

Part two featuring the other three will be on the cards shortly. In the meantime, here’s a list of all 6. 

ETF NameASX Ticker 
Vanguards Australian Shares High Yield ETF(ASX:VHY)
iShares Dividend Opportunities ETF(ASX:IHD)
Russell Investments High Dividend Australian Shares ETF(ASX:RDV)
SPDR® MSCI Australia Select High Dividend Yield(ASX:SYI)
ETF Securities S&P/ASX 300 High Yield Plus ETF (ASX:ZYAU)
VanEck Morningstar Australian Moat Income ETF(ASX:DVDY)
Table #1 – The 6 Passive High Dividend Yield ETFs listed on the ASX (Ranked By Fund Size)

The ASX also offers Global, Active, and Harvester Dividend ETFs from the likes of Betashares, Russell Investments, eInvest and Intelligent Investor.

Best Dividend ETF(s) – Contents & Cheeky newsletter plug

You can click the links below to read about each ETF individually or my analysis of a specific attribute using the links below.

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Every book listed has helped me and my guests become better investors. I have no doubt they’ll do the same for you.

Need to level up your ETF game before reading up on the best dividend ETF(s)? 

Before I compare VHY, IHD and RDV, here’s a link to an investing basics article I wrote about the fundamentals of ETFs in case you need some ETF 101 first. If you’re interested in learning more about other Aussie ETFs, check out my reviews here. 

Why do some companies pay more dividends than others?

At their core, each of the three ETFs reviewed in this article aims to increase their exposure to higher-yielding companies paying a consistent dividend and reduce their exposure to companies doing the opposite.

Generally speaking, companies that payout higher dividends have fewer opportunities to reinvest their excess cash into other high returning ventures.

What I’ve Been Reading

These businesses are usually large, profitable, competitively positioned and have limited growth opportunities. Think Big 4 Banks or Woolies and Coles.

Their size and limited growth opportunities mean these businesses choose to pay out a larger proportion of their excess cash as dividends, rather than attempting to re-invest it to grow the business. 

Do small cap companies/start-ups pay dividends? 

In the small-cap/start-up world, the playbook usually works in reverse. Smaller companies with large growth runways will generally hold onto most or all of their surplus cash and use it to grow the business.

If the business isn’t earning much cash, it can raise capital through debt or equity financing. It’s only when it becomes established do the dividends start rolling (in most cases).

There are exceptions to the rule like Amazon or Berkshire Hathaway. Both these companies have market caps over $US 500 Billion and have never paid a dividend. 

What does this have to do with the best divdend ETF(s)?

Generally speaking, it’s usually the established companies with limited growth opportunities that pay out the largest dividends. As I review VHY, IHD and RDV you’ll notice that their largest holdings fit the large, profitable, high-yielding and slow-growing mould. 

Anyway, let’s jump into the first ETF on the chopping block, VHY. 

Best dividend ETF(s) #1 – Vanguard VHY ETF Review (ASX:VHY)

VHY invests in a group of Australia’s highest yielding companies by closely tracking the FTSE Australia High Dividend Yield Index.

The Index aims to seek out companies with higher forecast dividend payments when compared to other companies listed on the ASX. It also looks to avoid dividend traps by considering the sustainability of a company’s dividend. 

How does VHY find high yielding dividend stocks to invest in?

VHYs universe of investable companies is filtered in the following ways as required by its underlying, Index provider (FTSE) to create a list of eligible companies.

  • Only permitted to invest in companies included in the FTSE ASFA Australia 200 Index.
  • Australian REITS (A-REITs) are not eligible for inclusion in the Index. If you want access to A-REITs, check out my comparison of VAP, MVA & SLF.
  • Excludes companies not planning to pay dividends in the next 12 months

How are eligible companies chosen for inclusion in VHY?

VHY only includes eligible companies with the highest 12-month forecast dividend yields.

VHY also implements industry and individual company weighting mandates that limit the ETFs exposure to a maximum of 40% for one industry and 10% for one company. 

It’s always a good idea to read the PDS

If you’re interested in reading more about VHYs methodology, you’ll find some additional information in its PDS. Although I must admit, the PDS for VHY is quite lean. 

Although Vanguard may have spared a few details in the PDS, their track record for doing the right thing by their investors means this isn’t a massive red flag for me. VHY’s popularity amongst investors as judged by its AUM reinforces this.

VHY is the best dividend ETF on the ASX if you want a large pool of assets under management (AUM)

One thing that stands out about VHY is its significantly larger pool of assets under management (AUM) compared to IHD and RDV. VHYs larger AUM is beneficial for unitholders because the larger the ETF, the less likely it is to be shut down by the ETF provider. 

Bigger ETFs also usually have lower buy/sell spread fees and are more liquid, making them easier to trade.

Personally, I try to avoid ETFs with AUM of less than $100 million as a rule of thumb to avoid the pitfalls mentioned above.  

VHY$1.91B (As of 31/08/2021)
IHD$293M (As of 31/07/2021)
RDV$274M (As of 26/08/2021)
Table #2 – Best Dividend ETF(s) AUM Comparison (VHY vs IHD vs RDV)

Interestingly, VHY was last to list on the ASX out of RDV and IHD, but its AUM is almost quadruple the combined AUM of IHD and RDV. It looks like Vanguard’s stellar reputation combined with their low fees is serving VHY well.

VHY is The Best Dividend ETF On The ASX If You Want Low Cost.

In typical Vanguard style, VHY has the lowest MER compared to IHD and RDV.

In fact, it’s the cheapest of the 14 listed dividend focussed ETFs.

With a management fee, or MER (management expense ratio) of just 0.25% P.A, VHY offers investors the most cost-effective product in comparison to IHD (0.3% P.A), and RDV (0.34% P.A)

VHY is just another example of how Vanguard’s ownership structure allows them to offer incredibly low fees. Those low fees translate to VHY unit holders keeping more of the dividends paid by companies tracked by the ETF. Winner winner chickpea dinner. 

$10,000 invested in Best Dividend ETF(s) would cost you ⬇️

  • $25 for every $10,000 invested in VHY;
  • $30 for every $10,000 invested in IHD and;
  • $34 for every $10,000 invested in RDV. 

These fees are excluding bid/ask spread fees. 

VHY Key Facts

Use the table below to grab all the key facts about VHY you need to get comfortable with it!

As of 31 August 2021VHY
ETF IssuerVanguard Australia
Management Fee (Incl operational costs)0.25% P.A.
Benchmark IndexFTSE Australia High Dividend Yield Index
Rebalanced½ Yearly
Listed Since2011
Dividend Reinvestment PlanYes
12 Month Dividend Yield 4.2%
Income Distribution FrequencyQuarterly
3 Yr  Total Return (Dividend + Growth)**8.9%
3 Yr   Total Return (Dividend Only)*5.1%
Total Return Since Inception (Dividend + Growth)**9%
Return Since Inception (Dividend Only)*6.2%
Funds Under Management (FUM)$1.91B
Number of Holdings (ETF)64
Weighting MethodologyMarket Capitalisation Weighted
Top Ten Holdings (Highest To Lowest)Commonwealth Bank, BHP, Wesfarmers, Westpac Bank, National Australia Bank, Telstra Corp, ANZ Bank, Rio Tinto, Transurban Group, Fortescue Metals
Top Ten Holding Concentration67.4% of the total ETF holdings.
Table #3 –  VHY ETF Review, Key Facts Table

 **After fees, dividends reinvested & *After fees

Want to know more about VHY?

You can check out the latest VHY fact sheet If you’re keen on doing some further reading. 

Best dividend ETF(s) #2 – iShares IHD ETF Review (ASX:IHD)

IHD first appeared on the ASX in 2010 and has set out to provide investors with access to 50 high-yielding Aussie companies while avoiding dividend traps ever since. 

IHD aims to mirror the performance of the S&P/ASX Dividend Opportunities Accumulation Index

As you’d expect, the indexes tracked by VHY, and IHD aim to achieve a similar end result. Albeit with their own nuances. Let me explain.

How IHD identifies high yielding ASX Companies

Similarly to VHY, the initial list of companies selected for IHD are chosen from a broad, Australian Share Market Index. The list is then condensed to align with the index’s other mandates. 

However, IHDs initial pool of companies is selected from the S&P/ASX 300 index, not the FTSE ASFA Australia 200 Index. 

IHDs list of eligible securities is cut down by applying the following filters:

  • Australian REITS (A-REITs) are not eligible for inclusion in the ETF. 
  • Companies must have a minimum market map (free-float adjusted) of $AUD 500M
  • Companies must have an average 6 month daily trading volume of  $AUD 2M

How are eligible companies chosen for inclusion in IHD?

Once eligible companies are identified, IHD screens them against their dividend stability. This ensures companies included in the ETF have a history of consistently growing their dividends. 

Interestingly, for companies already included in IHD, dividend growth declines are acceptable. Declines are capped at 5% over a three year period. IHD also takes momentum scores calculated from a company’s past performance into account. 

IHDs weighting requirements

Like VHY, IHD also implements industry and individual company weighting requirements that limit the ETFs exposure to a maximum of 30%* for one sector and 10% for one company. 

For more detail on how IHD is constructed, I suggest reading through the Index Methodology. 

*or S&P/ASX 300 sector weight minus 10% (whatever is larger)

Which is the best dividend ETF (VHY vs IHD vs RDV) if you want top performance? Spoiler: it’s not IHD.

When comparing similar ETFs, it’s always a good idea to measure their performance against each other. Doing so will give you some insight into which strategy has worked best over the short, medium and long term.

IHDs underlying index methodology seems to be more comprehensive than VHY, and on par with RDV. But judging by IHDs historical performance, VHYs approach has worked better.

As of 31/08/2021Total Return Since Inception (Dividend + Growth)**Return Since Inception (Dividend Only)*5 Yr  Total Return (Dividend + Growth)**5 Yr  Total Return (Dividend only)*3 Yr  Total Return (Dividend + Growth)**3 Yr  Total Return (Dividend only)*
ASX: VHY9%6.2%9.29%6.35%8.9%5.1%
ASX: IHD5.3%Not provided by iShares.7.1%Not provided by iShares.7.1%Not provided by iShares.
ASX: RDV7.3%5.5%7.1%5.7%5.9%5.4%
ASX: VAS9.9%4.4%11%4.2%10.1% 3.87%
Table #4 – Best Dividend ETF(s) Performance Comparison (VHY vs IHD vs RDV)

**After fees, dividends reinvested & *After fees

VHY has performed considerably better over a 3, 5 and 10 year period compared to RDV and IHD when considering dividends and total returns (capital growth + dividends).

Given the minimal difference in fees between IHD, VHY, and RDV, it would be plausible to suggest the past underperformance of IHD and RDV could partially be a result of their underlying investment strategies.

IHD, VHY and RDV have all underperformed the ASX/S&P 300.

Interestingly, all three high-yield ETFs have underperformed when compared to the broad-based ASX/S&P 300 index tracked by ASX:VAS in terms of total return.

There are a few good reasons for this ⬇️.

Why is total return important to consider before investing in one of the best dividend ETF(s) like IHD?

As I mentioned earlier, high-yielding stocks are usually mature, low growth companies. On the other hand, broader ETFs like VAS that don’t have yield mandates can hold faster-growing companies that don’t pay dividends like Afterpay.

That’s why the total returns of ETFs like VHY, IHD, and RDV have historically been lower than broader ETFs like VAS.

Consider your investing horizon before investing in high yield ETFs

Generally speaking, I believe it makes sense for younger investors in the asset accumulation phase to focus on building exposure to broad index-tracking ETFs like VAS, VGS or NDQ. Why? Because they have greater potential for higher total returns.

Once they’re ready to rely on their investments for income come retirement, they can consider transitioning into income focussed assets like high-yield ETFs.

That’s why it’s important to consider your investing horizon before committing to a high yield ETF like IHD, VHY or RDV. 

IHD Key Facts

Use the table below to grab all the key facts about IHD you need to get comfortable with it!

As of 31 August 2021IHD
ETF IssueriShares 
Management Fee (Incl operational costs)0.3% P.A.
Benchmark IndexS&P/ASX Australia Dividend Opportunities Index
Listed Since2010
Re-balanced½ Yearly
Dividend Reinvestment PlanYes
12 Month Dividend Yield 4.1%
Income Distribution FrequencyQuarterly
3 Yr  Total Return (Dividend + Growth)**7.1%
3 Yr   Total Return (Dividend Only)*Breakdown not provided by iShares.
Total Return Since Inception (Dividend + Growth)**5.3%
Return Since Inception (Dividend Only)*Breakdown not provided by iShares.
Funds Under Management (FUM)$293M
Number of Holdings (ETF)50
Weighting MethodologyMarket Capitalisation Weighted – Minimum of 500m.
Top Ten Holdings (Highest To Lowest)Woolworths, Wesfarmers, BHP, Fortescue Metals, Coles, Rio Tinto, ASX Ltd, APA Group, Medibank Private, Sonic Healthcare 
Top Ten Holding Concentration66.4% of the total ETF holdings.
Table #5 –  IHD ETF Review, Key Facts Table

 **After fees, dividends reinvested and *After fees

Want to know more about IHD?

The fact sheet is a great place to start. Why not browse its PDS while you’re at it.

Best dividend ETF(s) #3 – RDV ETF Review (ASX:RDV)

The focus on selecting companies with reliable, growing dividends is a consistent theme across all three ETFs. But as the first ASX listed ETF with an income focus, RDV is the trailblazer of the bunch. 

In RDVs case, its underlying index (Russell Australia’s High Dividend Index) is designed to not only focus on quality dividends but penalise companies with declining or inconsistent dividends.

It does so by ranking eligible companies based on their composite yield score (CYS). The final CYS is based on a number of factors like forecast dividend yield and trailing dividend yields. 

RDV selects its holdings from a smaller pool

Unlike VHY and IHD, RDV selects its holdings from a smaller pool of eligible companies by starting off with businesses included in the FTSE ASFA Australia 100 Index. 

While RDV’s initial universe of investable companies is smaller, eligible companies don’t need to meet any additional weighting and liquidity requirements like they do to be included in VHY or IHD. 

I suspect this is because RDV aims to select 50 blue chip, high-yielding Australian companies from a pool of the Australians largest 100 companies. Larger companies tend to have higher daily trading volumes, making them more liquid to trade. 

Although not having a weighting cap does mean there’s nothing stopping a sector or company from amassing an outsized position in the RDV. 

Sector diversification – Best dividend ETF(s) compared

Although RDV doesn’t have a sector weighting cap, it’s not the most concentrated in terms of sector diversification. That said, it does take the cake for having the largest weighting to one sector. 

42.8% of RDV is weighted solely towards financials, and its top three sectors make up 67.5% of the ETF. 

By comparison, IHD and VHYs top three most concentrated sectors account for 65.5% and 74.8% of the ETFs total weighting respectively.

The table below is worth a thousand words.

As of 31 August 2021RDVIHDVHY
Financials 42.8%12.3%40.4%
Real Estate11.1%0%0%
Consumer Discretionary8.6%18.9%12.9%
Communication Services6.4%2.6%5.9%
Industrials 5.1%3.9%9.2%
Health Care2.6%3.3%0%
Consumer Staples2.5%20.3%4.2%
Table #6 –   Best Dividend ETF(s) Sector Diversification Comparison (VHY vs IHD vs RDV)

IHDs sector weighting cap and exposure to 10/11 ASX sectors arguably makes it the most diversified ASX dividend ETF from a sector perspective. RDV sits somewhere in the middle, and VHY is easily the most concentrated. 

What you do with this information depends on your view of certain sectors. Obviously, if you’re interested in increasing your exposure to high-yielding companies in the financial sector, RDV and VHY are great options. If the opposite is true for you, then IHD makes more sense.

Bear in mind sector allocations will change when the VHY, IHD and RDV are rebalanced every six months.

RDV key facts

Use the table below to grab all the key facts about RDV you need to get comfortable with it!

As of 31 August 2021RDV
ETF IssuerRussell Investments
Management Fee (Incl operational costs)0.34% P.A.
Benchmark IndexRussell Australia High Dividend Index
Re-balanced½ Yearly
Listed Since2010
Dividend Reinvestment PlanYes
12 Month Dividend Yield 2.7%
Income Distribution FrequencyQuarterly
3 Yr  Total Return (Dividend + Growth)**5.9%
3 Yr   Total Return (Dividend Only)*5.4%
Total Return Since Inception (Dividend + Growth)**7.3%
Return Since Inception (Dividend Only)5.5%
Funds Under Management (FUM)$274M
Number of Holdings (ETF)51
Weighting MethodologyMarket Capitalisation Weighted – Minimum of 500m.
Top Ten Holdings (Highest To Lowest)Commonwealth Bank, National Australia Bank, Westpac Bank, BHP, ANZ Bank, Telstra, Suncorp Group, Wesfarmers,  Ausnet Services, Bendigo & Adelaide Bank
Top Ten Holding Concentration44.5% of the total ETF holdings.
Table #7 –  RDV ETF Review, Key Facts Table

 **After fees, dividends reinvested, *After fees

Want to know more about RDV?

Check out the RDV fact sheet for a high-level overview of the ETF.  RDVs PDS and Index Methodology will help you peel back the next layer of the RDV onion. 

Jesse’s verdict on the best Dividend ETF(s) (VHY vs IHD vs RDV)

As you’ve probably realised by now, the shine of dividend focussed ETFs starts to fade pretty fast once you realise it’s likely going to come at the cost of lower total returns. Seems like there’s still no such thing as a free lunch, unfortunately. 

Personally, I don’t own any of the three ETFs discussed, or any yield focussed ETF for that matter. Given I’m fairly early on my investing journey, my focus is on growth rather than income. Investors with a preference for income focussed assets may want to consider either one of VHY, IHD & RDV.

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About The Author – Jesse
Hi, I’m Jesse, but you can call me Jes for short. My passion is simple, I’m on a mission to make the world of investing easily understood by removing the ‘too hard basket’ stigma that surrounds it.

P.S. I’d love to meet you on Twitter or Insta or both.

Disclaimer: The information provided in this article is general in nature only and does not constitute personal financial advice about how you should manage your investments. In this article, I intend to provide factual, balanced information without judgment or bias, to the best of my ability. My financial decisions (or use of a particular service or platform) are personal choices based on their specific circumstances and do not automatically make them appropriate for your personal circumstances. I do not recommend nor endorse any financial or investment product. My usage or opinion of any product should not be interpreted as an endorsement, advertisement, or intent to influence. I cannot and will not make a guarantee about the performance of any product, and although I strive to keep information on this website accurate and updated as it changes, I make no guarantee about the correctness of reviews or information posted. I am NOT a financial advisor and do not hold an AFSL. You should also consider seeking the advice of an investment advisor who holds an Australian financial services (AFS) licence or is a representative of an AFS licensee. Be sure to work with someone who understands your investment objectives and tolerance for risk. Your investment advisor should understand these products, be able to explain whether or how they fit with your objectives and be willing to monitor your investment alongside you.  You can find a financial advisor by visiting the ASIC financial adviser register and searching for one in your local area.

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