If You Only Buy One Dividend ETF, Make It This One

The First Trust Dow Jones Global Select Dividend Index Fund (NYSEMKT: FGD) might be the best dividend exchange-traded fund (ETF) you can buy right now. In fact, if you were to only buy one dividend ETF for your portfolio, you should make it this one. Here are three reasons why.

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1. A 5% yield

The First Trust Dow Jones Global Select Dividend Index Fund has one of the highest distribution yields among dividend ETFs, paying out a 12-month yield of 5.04%.

That's higher than the Schwab U.S. Dividend Equity ETF, ProShares S&P 500 Dividend Aristocrats® ETF, Vanguard High Dividend Yield ETF, Fidelity High Dividend ETF, iShares Core High Dividend ETF, Invesco S&P High Dividend Low Volatility ETF, State Street SPDR S&P Dividend ETF, and just about every other dividend ETF. (The term Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC.)

2. Market-beating returns

The First Trust Dow Jones Global Select Dividend Index Fund is up 12% year to date, beating the S&P 500. Over the past 12 months it has returned 32%, beating all the other dividend ETFs listed above. It also wins with a three-year annualized return of 22.5%.

Over the past five years, it has averaged an 11% total return. That trails only the Fidelity High Dividend ETF, which has a 13% annualized return, and is roughly on par with the Vanguard High Dividend Yield ETF.

FGD also beats the S&P 500 on a one- and three-year total return basis, but falls short of the 13% return for the large-cap benchmark over the last five years.

3. International diversification

The First Trust index fund is a global ETF, so it seeks out the top dividend payers not just in the U.S. but around the world. As such, it casts a wider net for the highest-yielding dividend stocks. But not only that, international markets are expected to outperform U.S. stocks over the next decade, according to strategists at Vanguard, Morgan Stanley, and Goldman Sachs, to name a few.

The top three holdings in the portfolio right now are Hyundai Elevator, based in South Korea, Robert Half (NYSE: RSI) in the U.S, and Banco BPM from Italy.

In addition to seeking the highest dividends, the ETF also has several screens for dividend quality and liquidity to ensure the constituents are stable dividend payers. Among the screens, the stocks must have paid a dividend in each of the past five years, and the company can't have negative 12-month earnings per share.

Ultimately, the portfolio contains the 100 stocks with the highest yields from developed markets that meet the various screens. They are weighted based on annual dividend yield. For these three reasons, this is the dividend ETF to target if you're only buying one.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ProShares S&P 500 Dividend Aristocrats ETF and Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.