ETF Showdown: Dividend Style

Dividends, as you may be aware, are back in style. Not that they should have ever been out of style. It has been documented hundreds of times, if not more, that dividend stocks outperform the broader market over time. So having a couple of dividend payers in your portfolio is a wise idea.

The universe of dividend payers is large to say the least. Dividend stocks can be found across a broad swath of sectors and market values, which can make stock selection a daunting task for some investors.

Fortunately, dividends are one investment theme ETF issuers have focused on and there are dozens of ETF options to choose from for income investors so let's get this ETF Showdown started with the Dow Jones Select Dividend Index Fund DVY and the SPDR S&P Dividend ETF SDY.

Right off the bat, it's important to note that these ETFs track different indexes. DVY tracks the Dow Jones U.S. Select Dividend Index while SDY follows the S&P High Yield Dividend Aristocrats Index.

DVY has 101 holdings while SDY has about 60. Don't be deceived by the emphasis on high yield in SDY's title. The ETF doesn't focus on speculative names that have become high yielders for a (bad) reason. It also doesn't get you involved with many names that are high yielders at all if we assume that "high yield" starts at 5%.

There's plenty of familiar names in both ETFs. Holdings that can be found in both funds include Chevron CVX, Kimberly-Clark KMB, McDonald's MCD and Clorox CLX.

A 33% weight to utilities for DVY could be problematic if interest rates rise. SDY's exposure to this sector is 15%. Both ETFs are heavy on consumer staples, which isn't surprising, at over 20% and both offer double-digit exposure to financials, which would be nice if banks would ever raise their dividends. Energy exposure is a disappointment with both funds at about 3% for each.

Picking a winner actually isn't that difficult when using the less is more theory. With fewer holdings, SVY offers more concentrated exposure to its better names and that can make a difference when it comes to year-end returns. That combined with less exposure to utilities and a lower expense ratio of 0.35% (DVY is 0.4%), make SVY the winner of this week's ETF Showdown.