DVY Is a Popular Dividend ETF for Passive Income. But Is It the Best?

Income investors often focus on a stock's dividend yield, but dividend yield alone doesn't vide anywhere near enough information when it comes to selecting exchange-traded funds (ETFs)

But at the end of the day, this is ETF may not be the best choice for most income investors, and the reasons become when comparing it to another dividend-focused ETF

What does the is ETF do

The is Select Dividend ETF tracks the Dow Jones U

This means the highest-yielding stocks make up the biggest positions for the fund and have the biggest impact on its performance

Image source: Getty Images

The index's screening cess has these requirements for its holdings: They paid dividends in each of the past five years

Dividends increased over the five-year span, though not necessarily in every year

They had positive earnings over the past year

Select Dividend Index and, thus, the is ETF

However, the fund's expense ratio is rather high for an ETF at 0

A better choice to consider The Schwab U

That means the largest companies have the greatest impact on the fund's performance

The Schwab ETF's screening criteria are also different as it tracks the Dow Jones U

This index only includes companies that have increased their dividends every year for at least a decade (again, REITs are excluded)

A composite score is calculated for each of these companies by looking at their ratio of cash flow to total debt, return on equity, dividend yield, and five-year dividend growth rate

The Schwab ETF boasts a higher yield of 4

Its expense ratio is also lower at 0

The of is in the returns and yield With that information, picking the better overall dividend ETF for your portfolio should be fairly easy if you're looking to maximize income: The Schwab U

Dividend Equity ETF has a higher yield

But don't stop there because a higher yield isn't the only thing you're getting with the Schwab ETF -- it's also much less expensive to own

With fees paid annually on the total value of your position in each ETF, the higher expense ratio can add up to hundreds or thousands of dollars over time

The real icing on the cake, however, is evident by comparing the returns these two ETFs have vided to investors

The Schwab ETF's price performance has beaten that of the is ETF over the past decade

And as the chart above highlights, so has its total return, which includes the reinvestment of dividends

Taking these key performance metrics into account, it appears the screening cess backing the is Select Dividend ETF falls short

If you're a dividend investor who wants an ETF that screens for quality stocks, the Schwab U

Dividend Equity ETF is worth a look

Reuben Gregg Brewer has no position in any of the stocks mentioned

The Motley Fool has no position in any of the stocks mentioned

The Motley Fool has a disclosure policy.