Dividend stocks are a popular investment because the large-cap companies that consistently pay dividends are often viewed as lower risk than the stock market as a whole. And of course, the dividend payouts can be reinvested or taken as cash for a source of passive income.
While there’s a lot to like about dividend stocks, researching and identifying the stocks you want to buy can take up a lot of time. If you’re looking for a simpler approach to pursue the same goal, the best ETFs with dividends may be the solution.
High-dividend exchange-traded funds (ETFs) invest in a portfolio of dividend stocks. All you need to do is pick the ETF you want to purchase rather than constantly tracking individual stocks.
Related: The Best ETFs for Long-Term Growth
How to Invest in ETFs
Thanks to brokers like Public.com and Webull, you can buy fractional shares of ETFs and get started for as little as $1. M1 Finance also supports fractional shares (minimum deposit of $100 to get started) and allows you to automate your investments.
Buying an ETF with any of these brokers is just like buying a stock. You can buy or sell any time the stock market is open, so it’s a completely liquid investment.
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The purpose of this article is to highlight some ETFs that may be a good fit if you’re looking for investments that generate income. This is not investment advice, and it’s possible to lose money with these ETFs. If you have questions about your situation, seek personalized help from a financial professional.
The Best ETFs with High Dividends
The ETFs listed below are not ranked. They’re all among the best options in the industry, and the one that’s right for you will be determined by your particular situation.
The details for each ETF listed below are taken from VettaFi and are valid as of the day this article was updated, December 20, 2023. Check the current details, as they will change with time.
Related: How to Get Free Stocks
1. Vanguard High Dividend Yield ETF (VYM)
Vanguard is known for having excellent funds with low expense ratios, and their High Dividend Yield ETF is a solid choice for investors who want to maximize dividends. It’s linked to the FTSE High Dividend Yield Index. Investors will get exposure to large-cap U.S. equities that have an established history of paying dividends.
The holdings of VYM include many companies that are in stable industries. Combined with the established track record of these companies, VYM is considered to be a relatively low-risk investment compared to the average stock or ETF.
Although the FTSE High Dividend Yield Index includes well over 400 companies, the exposure of this ETF is most heavily weighted towards consumer, energy, and industrials.
Expense Ratio: 0.06%
Annual Dividend Yield: 2.69%
1 Year Return: 0.93%
3 Year Return: 26.35%
5 Year Return: 45.79%
2. Vanguard Dividend Appreciation ETF (VIG)
Another Vanguard fund, the Dividend Appreciation ETF, tracks the performance of the NASDAQ U.S. Dividend Achievers Select Index. Like VYM, VIG also focuses on large-cap U.S. equities with strong growth characteristics and a proven track record of paying dividends.
The NASDAQ U.S. Dividend Achievers Select Index includes less than 200 companies, focusing heavily on consumer staples, health care, and industrials. The companies must have increased dividend payouts for at least ten consecutive years to be considered for this fund.
Like VYM, VIG also has a very low expense ratio of just 0.06%.
Expense Ratio: 0.06%
Annual Dividend Yield: 1.53%
1 Year Return: -7.89%
3 Year Return: 29.13%
5 Year Return: 62.21%
3. Schwab US Dividend Equity ETF (SCHD)
The Schwab US Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index. With rigorous requirements related to dividend payout growth, the holdings of SCHD tend to be well-established large-cap equities.
Like the first two funds on our list, SCHD also offers a very low expense ratio of just 0.06%. The holdings of SCHD are mostly household names recognizable to most Americans.
Expense Ratio: 0.06%
Annual Dividend Yield: 2.83%
1 Year Return: -1.79%
3 Year Return: 43.78%
5 Year Return: 71.53%
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4. iShares Select Dividend ETF (DVY)
The iShares Select Dividend ETF tracks the Dow Jones U.S. Select Dividend Index. There are only about 100 holdings in the portfolio, which is significantly less than some of the other ETFs on this list. The portfolio is well-balanced, but there’s a focus on energy and utilities.
The expense ratio of 0.39% is comparable with other similar funds but significantly higher than the ETFs mentioned so far.
Expense Ratio: 0.38%
Annual Dividend Yield: 3.16%
1 Year Return: 3.20%
3 Year Return: 26.14%
5 Year Return: 43.80%
5. SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
The SPDR Portfolio S&P 500 High Dividend ETF tracks the S&P 500 High Dividend Index. This index attempts to identify 80 of the best companies in the S&P 500 in terms of dividend yield.
With a focus on the S&P 500, this fund invests in large-cap U.S. equities. However, with fewer holdings in the portfolio, the approach is different than the other ETFs mentioned so far. Instead of looking for a long track record of dividend payments, SPYD simply aims to find the highest current dividend yields.
The expense ratio of just 0.07% makes SPYD an attractive option.
Expense Ratio: 0.07%
Annual Dividend Yield: 4.88%
1 Year Return: 0.12%
3 Year Return: 15.12%
5 Year Return: 30.43%
6. SPDR S&P Dividend ETF (SDY)
The SPDR S&P Dividend ETF tracks the S&P 500 High Yield Dividend Aristocrats Index. The companies included in the index are large-cap U.S. equities with a long track record of paying dividends to investors (must have at least 25 years of increased dividends).
Dividend Aristocrats are often considered among the safest investments in the overall stock market because of their stability and history. In fact, many investors seek out Dividend Aristocrats to invest in directly by purchasing company stock.
If you’re looking for a hands-free way to get these stocks in your portfolio, SDY could be an enticing option. The expense ratio of 0.35% is higher than some of the other ETFs on this list but is in line with other comparable funds.
Expense Ratio: 0.35%
Annual Dividend Yield: 2.70%
1 Year Return: 1.66%
3 Year Return: 26.25%
5 Year Return: 50.73%
7. iShares Core Dividend Growth ETF (DGRO)
The iShares Core Dividend Growth ETF follows the Morningstar US Dividend Growth Index. This is a diversified fund with more than 400 holdings.
The companies must show a history of paying out dividends to investors, but the requirements aren’t as stringent as the qualifications to be considered a Dividend Aristocrat. As a result, DGRO can hold stock of a greater range of companies, which provides diversification.
Like most of the other funds covered in this article, the top holdings of DGRO include many household names. The low expense ratio of 0.08% is also extremely attractive to investors.
Expense Ratio: 0.08%
Annual Dividend Yield: 1.94%
1 Year Return: -6.42%
3 Year Return: 27.20%
5 Year Return: 59.42%
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8. iShares Core High Dividend ETF (HDV)
The iShares Core High Dividend ETF tracks the Morningstar Dividend Yield Focus Index. Like most other funds covered here, HDV focuses on large-cap U.S. equities with growth characteristics and a track record of paying dividends.
One of the more unique details of HDV is that it only includes about 75 holdings, which is smaller than most of the other funds on this list. The most exposure is given to health care and consumer.
Expense Ratio: 0.08%
Annual Dividend Yield: 3.41%
1 Year Return: 7.28%
3 Year Return: 18.07%
5 Year Return: 36.81%
9. ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
The ProShares S&P 500 Dividend Aristocrats ETF tracks the S&P 500 Dividend Aristocrats index. Since it focuses on Dividend Aristocrats, the fund features large-cap U.S. equities with long track records for dividend payouts and increases.
NOBL includes only about 65 holdings, but its approach helps to minimize risk and increase diversification. It achieves this by using equal weights for holdings and allowing no sector to account for more than 30% of the portfolio.
Expense Ratio: 0.35%
Annual Dividend Yield: 1.84%
1 Year Return: -4.13%
3 Year Return: 27.58%
5 Year Return: 56.40%
10. Vanguard Real Estate ETF (VNQ)
The Vanguard Real Estate ETF is much different than the others listed here, but it’s worth considering if you’re looking to increase the dividends generated by your portfolio. VNQ tracks the MSCI US Investable Real Estate 25/50 Index.
If you’re interested in investing in real estate, VNQ is one of the easiest ways to get broad exposure to U.S. real estate.
If you’re looking for other similar options, check out our list of the best real estate and REIT ETFs.
Expense Ratio: 0.12%
Annual Dividend Yield: 2.96%
1 Year Return: -23.29%
3 Year Return: 0.86%
5 Year Return: 16.96%
Why Invest in High-Dividend ETFs?
There are several different reasons why you might want to include a dividend-focused ETF in your portfolio, including:
Dividend stocks and ETFs are appealing because the investor can either reinvest the dividends (the investment will grow and compound faster) or take the dividends as cash payments. Cash payments serve as passive income.
Although consistent dividend payouts attract many investors, they’re especially practical for retirees. These payments can be used as a source of income to cover living expenses during retirement.
Of course, you could invest in dividend ETFs at any age and simply reinvest the dividends until you reach retirement age.
The companies that pay dividends are typically very large, well-established companies. These large-cap equities tend to be considered relatively low risk (for the long-term investor) compared to the stock market as a whole. Companies like Microsoft, Johnson & Johnson, Apple, and Coca-Cola have been around for decades and have a demonstrated history of stability.
Of course, that doesn’t mean there’s no risk in these investments, but it does provide additional confidence to long-term investors.
Investing in a dividend ETF provides you with greater diversification rather than buying the stock of an individual company. The ETFs mentioned in this article include anywhere from 65 to 400+ company stocks within their portfolios. That means you can get some diversification from a single fund, even if you only invest a small amount of money.
Buying an ETF is easy. Buying individual stocks is easy too, but you’ll probably have to do a lot of research and spend many hours analyzing and monitoring your investments. If you want to add a new stock to your portfolio, you’ll need to research and decide which one you want to buy.
With an ETF, you only need to make the decision once. You’ll be able to have many different holdings in your portfolio without dedicating time to researching individual stocks.
Frequently Asked Questions
Yes, you can. Some ETFs, including the ones covered in this article, attempt to provide investors with maximum dividends by investing in equities with a track record of paying dividends. As a result, you can get dividends from ETFs just like from individual stocks.
It depends on your situation. Dividend ETFs provide an easy and convenient way to produce passive income from your portfolio without selling off your assets. They can be a good option for investors who need passive income, like retirees. The expense ratios of most of the ETFs featured on this page are very low, so you don’t have to worry about fees eating away at your earnings.
Assuming the funds are held in a taxable account (not a tax-advantaged retirement account), the dividends will be taxed either as regular income or at a lower rate due to special considerations. Be sure to check with a CPA or tax professional to get personalized advice based on your unique situation.
Are the Best ETFs with High Dividends Right for You?
Dividend ETFs can be an attractive investment option because of the convenience of holding a broad range of stocks in your portfolio without researching individual companies. If you’re interested in an investment that produces passive income, you may want to consider some of the best ETFs with dividends covered in this article. As always, be sure to perform your own due diligence before any investment.