Investing can begin to take on the feeling of a full-time job, especially if you pick your own individual stocks. What if you want to take advantage of the income and price appreciation of the dividend investing strategy, but you simply don’t have the time to do all the research and keep track of several dividend stocks?
That’s where exchange-traded funds (ETFs) come into play.
ETFs are a type of bucket investment in which money is pooled from a large group of investors to buy shares in multiple stocks based on the fund’s goals. Because the dividend investing strategy has been proven successful when deployed correctly, there are several funds that focus solely on this strategy.
Dividend ETFs let you take advantage of the dividend investing strategy without having to devote significant time to research and rebalancing. If you choose this approach, finding the best dividend-centric funds that meet your investing goals is key to your success.
What to Look for in Dividend ETFs
Like any other investment, you’ll want to do a bit of research before diving into any ETF, whether it’s focused on generating high dividend payments, generating growth, investing in value stocks, or following any other investment model.
At the end of the day, not all investments in any category will produce the same returns. When researching high-yield dividend ETFs, pay close attention to these factors:
As with any investment, there are expenses associated with investing in ETFs. These expenses include management fees, the cost of trading, and the cost of running a team that often includes a fund manager, a group of active traders, and a group of analysts.
Gauging the cost of one fund against another is a relatively simple process thanks to what’s known as the expense ratio, which simply breaks down the cost of the fund as a percentage of the investment.
For example, a $100 investment in an ETF with a 1% expense ratio will cost the investor $1 per year, or 1% of $100. Making sure that your expense ratio is low means that you’ll enjoy higher overall returns. The average expense ratio among ETFs is 0.44% according to the Wall Street Journal.
Dividend yield is a term describing the amount of money in dividends you stand to earn in relation to a single share of the ETF. For example, if the ETF costs $25 per share and you earn $2.50 per share in dividends annually on your investment, the dividend yield for that ETF is 10%.
Volatility can be an investor’s enemy. When stock prices rise and fall dramatically, it makes entrance and exit decisions difficult and can lead to sharp short-term losses. So, before diving into any ETF, review its historical performance to ensure it has low levels of volatility, which generally means you’ll enjoy stable dividends and slow, steady growth.
Market capitalization refers to the amount of money all shares of a company, ETF, or other asset are worth in total. Historically, the best dividend-paying stocks are large-cap, well-established companies, but some small-cap companies in emerging markets pay decent dividends too.
Nonetheless, the larger the market cap, the lower the risks are in general. So, make sure that the ETF you’re considering invests in companies that have a market cap you feel comfortable with.
If you’re looking for strong, stable dividends, you’ll want a large-cap dividend fund. If you’re looking for strong dividends with the potential for significant price appreciation and don’t mind the risks associated with that type of investment, small-cap dividend funds may be the way to go.
Assets Under Management
A good dividend fund is going to become popular. After all, when people see others are making money in the fund, they’ll want to dive in.
So, it’s a good idea to look at the assets under management to see just how much money is flowing through the ETF before buying shares. The more assets the ETF has under management, the more popular the fund is.
As a dividend investor, you want to make sure you receive growing dividend payments over time. It’s a good idea to look into the history of an ETF to see if its dividends have been growing consistently over the past few years.
ETFs will allocate their assets to a wide range of investments with heavy diversification. However, these investments generally fall into pretty specific categories.
Before buying any ETF, make sure that you understand the asset allocation of the fund and that the allocation is in line with your financial goals.
Finally, you want to invest in ETFs that are known for performing well, both from a dividend growth standpoint and from a price appreciation standpoint.
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Best High-Dividend ETFs
If you’re on the hunt for high-dividend ETFs, you’ll quickly find there are plenty of options to choose from. So, where do you start?
Here’s a list of some of the top options to consider:
1. iShares Emerging Markets Dividend ETF (DVYE)
The iShares Emerging Markets Dividend ETF invests in a long list of high-dividend-paying emerging market stocks.
- Cost: With an expense ratio of 0.49%, the fund’s fees are slightly above the average ETF expense ratio of 0.44%. However, the slightly higher cost is largely offset by market-leading dividends.
- Dividend Yield: Over the past five years, the dividend yield on the fund has ranged from 3.3% to 9.34%. This compares favorably to the average yield among utilities stocks, a sector known for high dividend yields, which sits at just under 4%.
- Asset Allocation: The fund only invests in stocks. However, the list of stocks owned in the portfolio is vast, comprising 95 different emerging market plays known for paying high dividends.
- Volatility: Because the fund invests in emerging market stocks, wide swings in value are to be expected. For example, the ETF crashed due to the COVID-19 pandemic but made a full recovery afterward.
- Market Capitalization: Although there are some large-cap companies in this fund’s portfolio, as an emerging markets investment, the vast majority of its holdings are in the small- to mid-cap range.
- Assets Under Management: This ETF has more than $880 million in assets under management, making it one of the larger ETFs on the stock market today.
- Dividend History: Although the fund has a strong history of strong dividends, dividend payouts have been all over the place. Sure, there hasn’t been consistent growth in dividends, but that’s to be expected when investing in emerging markets.
- Historic Performance: The DVYE isn’t just a strong dividend payer, it’s also a great option for those in search of price appreciation. Over the past year, investors have earned returns of more than 32%. Over the past three and five years, returns have clocked in at 6.46% and 9.17%, respectively.
2. WisdomTree Emerging Markets High Dividend Fund (DEM)
Like the iShares Emerging Market Dividend ETF, the WisdomTree Emerging Markets High Dividend Fund is focused on investing in emerging market stocks known for paying high dividends.
The highly diversified portfolio is a great option for those looking to diversify their income holdings or take a passive approach to investing in emerging markets.
- Cost: With an expense ratio of 0.63%, an investment in the fund comes at a higher price than the average ETF, but the increased cost is offset by a high dividend.
- Dividend Yield: Over the past five years, yields on the fund have ranged from 3.25% to 7.54%, offering significant income when investing in the fund. .
- Asset Allocation: The fund spreads its assets across a highly diversified list of stocks, providing access to multiple emerging markets around the world and multiple industries within each market.
- Volatility: As with most investments in emerging markets, the fund comes with higher levels of volatility than other ETFs.
- Market Capitalization: The fund is designed to give investors access to a wide range of market caps across a variety of emerging markets. As such, its holdings include a mix of small-cap, mid-cap, and large-cap stocks.
- Assets Under Management: The assets under management in the fund sit at more than $2 billion.
- Dividend Growth: There seems to be a pattern to the dividend payments with the fund. The highest dividend paid has historically been during the third calendar quarter, with the lowest historically being during the fourth calendar quarter. Before the coronavirus pandemic-riddled year of 2020, the ETF had shown relatively stable growth of its dividend payments on a year-over-year basis.
- Historic Performance: The DEM is a steady performer, generating more than 30% returns for investors over the past year. Over the past three and five years, returns have been 7.26% and 10.05%, respectively.
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3. Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation ETF was designed to provide investors with exposure to a highly diversified list of United States-based companies that have a history of increasing dividends over time.
It does so by tracking the Nasdaq US Dividend Achievers Select Index, which represents a group of companies that have increased their dividends annually over at least the past 10 years.
Although the fund took a hit early in 2020 as a result of the COVID-19 pandemic, it quickly recovered, making it one of the most impressive ETFs over the past couple of years.
- Cost.: Investors pay just 0.06% annually to invest in the fund, well below the industry average.
- Dividend Yield.: Over the past five years, the yield on the fund has ranged from 1.49% to 2.39%, which is relatively low for a dividend-generating ETF. Nonetheless, the relatively low yields are made up for with significant price appreciation.
- Asset Allocation: As mentioned above, the vast majority of holdings in the fund are large-cap U.S. companies.
- Volatility: Because the ETF invests in large U.S. companies, the fund isn’t as volatile as you would expect to see from some of the emerging market funds on this list, making it the perfect option for risk-averse investors.
- Market Capitalization: The fund focuses on exposure to large U.S. companies. As such, the vast majority of holdings in the ETF are large-cap stocks.
- Assets Under Management: With more than $71 billion in assets under management, the fund is an overwhelmingly popular investing option, as is the case with most Vanguard funds.
- Dividend Growth: The ETF specifically focuses on investing in large U.S.-based companies that have a history of increasing dividends. As such, the ETF experiences relatively steady dividend growth.
- Historic Performance: Over the past year, the fund has generated 34.37% growth. On an annualized basis over the past three and five years, the growth has been 17.21% and 15.42%, respectively, making it one of the top-performing ETFs by way of price appreciation.
4. WisdomTree Global High Dividend Fund (DEW)
The WisdomTree Global High Dividend Fund provides exposure to United States-based companies and to companies in developing and emerging markets around the world that provide high dividends.
- Cost: The expense ratio on the fund is 0.58%. Although this expense ratio is high compared to the average among ETFs, it makes up for the higher expense with strong dividends.
- Dividend Yield: The dividend yield on the ETF is just over 4%, making it an attractive income investment.
- Asset Allocation: The ETF is a highly diversified list of U.S. stocks, as well as stocks in various global markets. These holdings cover a wide range of market caps and sectors, aiming to provide exposure to the highest dividend payers around the world.
- Volatility: All told, the fund is somewhat volatile. Investments in large U.S. companies shield the ETF from some of the volatility that comes with exposure to developing and emerging markets.
- Market Capitalization: An investment in the fund provides access to a portfolio with a healthy mix of market capitalizations, including small-cap, mid-cap, and large-cap companies.
- Assets Under Management: The ETF has just over $77 million in assets under management, making it one of the smaller ETFs that you may want to consider.
- Dividend Growth: Aside from a hiccup in 2020 as a result of the global COVID-19 pandemic, the fund has a solid record of increasing dividend payments.
- Historic Performance: An investment in the fund is an investment focused on dividends, not necessarily price appreciation. In fact, it’s one of the poorer performers on the list in terms of price appreciation, with an annualized growth rate of just 6.41% over the past five years.
5. Vanguard High Dividend Yield Index Fund ETF (VYM)
Designed to track the British Financial Times Stock Exchange (FTSE) High Dividend Yield Index, the Vanguard High Dividend Yield ETF invests in a wide variety of dividend stocks across global markets.
- Cost: As with most Vanguard funds, the expense ratio on this ETF is one of the lowest on the market at just 0.06%.
- Dividend Yield: Over the past five years, the dividend yield on the fund has ranged from 2.64% to 4.50%. Although there are other ETFs that provide higher dividends, this particular ETF provides acceptable dividends alongside compelling growth.
- Asset Allocation: Because the ETF tracks the FTSE High Dividend Yield Index, its assets are spread across a wide range of stocks in terms of market capitalization, geographic location, and industry.
- Volatility: The fund is known to be quite volatile. The good news is that throughout its history, the vast majority of this volatility has been on the upside.
- Market Capitalization: As mentioned above, the ETF tracks the FTSE High Dividend Yield Index. As a result, its portfolio contains stocks with a wide range of market caps.
- Assets Under Management: The fund has just over $48 billion in assets under management, making it one of the more popular funds on the stock market today.
- Dividend Growth: The ETF has a strong history of dividend growth. While dividend payments took a slight hit in early 2020 as a result of the COVID-19 pandemic, the index quickly recovered and today is offering some of the highest dividends it has ever provided.
- Historic Performance: The VYM is known for strong price appreciation, generating gains of more than 37% over the past year. In the past three and five years, returns have come in at 11.66% and 11.43%, respectively.
6. Schwab U.S. Dividend Equity ETF (SCHD)
Charles Schwab is one of the most trusted firms on Wall Street, and the company’s funds are known for compelling performance.
In particular, the Schwab U.S. Dividend Equity ETF was designed to track the returns created by the Dow Jones U.S. Dividend 100 Index, providing exposure to some of the strongest dividend payers in the United States.
- Cost: With an expense ratio of just 0.06%, the fund comes with a highly competitive cost structure, allowing you to keep more of your gains in your portfolio.
- Dividend Yield: Over the past five years, the yield on the stock has ranged from 2.47% to 4.37%, offering up reasonable income. Moreover, with the compelling historic performance in terms of price appreciation, a lower dividend is acceptable.
- Asset Allocation: The ETF tracks large-cap dividend stocks listed on the Dow Jones U.S. Dividend 100 index. The holdings in the ETF consist of large-cap U.S.-based companies that are known for paying dividends.
- Volatility: Because the fund is designed to track the Dow Jones U.S. Dividend 100 index, investments in its portfolio are relatively large, stable, U.S.-based companies that don’t tend to experience wide swings in value.
- Market Capitalization: The vast majority of holdings in the ETF’s portfolio are large-cap stocks.
- Assets Under Management: The ETF has more than $26 billion in assets under management, a sign that the ETF is overwhelmingly popular.
- Dividend Growth: The fund has relatively consistent dividend growth. Surprisingly, there were no hiccups in the fund’s dividend growth in the year 2020, even as the COVID-19 pandemic hit many other ETFs pretty hard.
- Historic Performance: The ETF is one of the top performers on this list, generating a whopping 51.13% growth rate over the past year. Over the past three and five years, the ETF has generated returns of 19.22% and 16.36%, respectively.
7. iShares International Select Dividend ETF (IDV)
The iShares International Select Dividend ETF provides investors with exposure to a diversified list of relatively high-dividend-paying companies located in developed markets outside the U.S.
- Cost: Investors shell out 0.49% per year to invest in the IDV, which is slightly above average, but the fund makes up for the higher fees with exceptionally high dividends.
- Dividend Yield: Over the past five years, the dividend yield on the fund has ranged from 3.74% to 10.30%. Again, with a dividend yield that high, you’re not going to lose sleep over an expense ratio that’s slightly higher than the industry average.
- Asset Allocation: The fund invests in a diversified portfolio of relatively large, high-dividend-paying stocks in developed countries outside of the United States.
- Volatility: The vast majority of stocks in the ETF are large companies in developed countries. As a result, the fund is known to be relatively stable, making it a safer play.
- Market Capitalization: The market capitalization of equities held in the fund is generally pretty high. These companies are large, international companies that have solid business models and a strong history of performing well for investors.
- Assets Under Management: The ETF has more than $4.4 billion in assets under management. While that’s not the highest number you’ll see in ETFs, it’s respectable and suggests that the ETF is in demand.
- Dividend Growth: Dividends on the ETF are all over the place, with no clear pattern with regard to when dividend payments have been highest and lowest. Nonetheless, on average, the ETF comes with some of the largest payments you can expect, and its dividends are just about always sizable.
- Historic Performance: Over the past year, investors have earned more than 30% returns. In the past three and five years, the fund has generated returns of 4.95% and 7.37%, respectively.
8. SPDR S&P Dividend ETF (SDY)
The SPDR S&P Dividend ETF provides investors with exposure to stocks listed on the S&P High Yield Dividend Aristocrats Index. This index tracks some of the highest dividend payers listed on the S&P Composite 1500.
- Cost: The expense ratio on the ETF sits at 0.35%, slightly below the industry average.
- Dividend Yield: The dividend yield on the fund has ranged from 2.14 to 4.07%. Sure, it’s not the highest dividend yield you’ll find among ETFs, but the historic share price appreciation makes the ETF well worth consideration.
- Asset Allocation: The vast majority of assets managed by the ETF are invested in large-cap companies known for producing compelling dividends.
- Volatility: The ETF tracks companies that have managed a dividend policy of consistent annual increases over the past 20 years. As a result, these are well-established companies that aren’t known to experience high levels of volatility.
- Market Capitalization: Although there are some mid-cap stocks included in the fund’s investment portfolio, the vast majority of companies it invests in are large-cap companies.
- Assets Under Management: The ETF has more than $19.6 billion in assets under management, making it one of the more popular ETFs on the stock market today.
- Dividend Growth: Because the vast majority of stocks the fund invests in have a history of increasing dividends annually over the past 20 years, the ETF itself experiences compelling dividend growth.
- Historic Performance: The historic performance of the ETF is impressive. Over the past year, the ETF has grown just over 38%. Over the past three and five years, annualized return rates have been 12.84% and 11.49%, respectively, suggesting that the ETF makes for a strong long-term investment opportunity.
9. iShares Select Dividend ETF (DVY)
iShares takes another spot in the top 10 best dividend-paying ETFs with the iShares Select Dividend ETF, a fund designed to provide diversified exposure to high-dividend-paying U.S. stocks.
- Cost: The expense ratio on the ETF sits at 0.39%, which is slightly better than average.
- Dividend Yield: Over the past five years, the dividend yield on the fund has ranged from 2.14% to 4.07%, offering respectable income.
- Asset Allocation: Most of the holdings in the fund are large-cap U.S. companies. However, it is worth noting that there are a few stocks on the ETF that trade in the mid-cap range.
- Volatility: With the vast majority of holdings in the fund being well-established dividend-paying companies in the United States, the ETF is relatively stable, offering a low-risk investing opportunity.
- Market Capitalization: Most of the stocks in the ETF are large, U.S.-based companies. As a result, a large majority of the stocks included in the fund trade with high market caps.
- Assets Under Management: The fund has more than $18 billion in assets under management. It’s clear that the ETF is one of the more popular options among investors.
- Dividend Growth: The ETF has a long history of dividend payment growth, and there’s no reason to expect that this trend will come to an end any time soon.
- Historic Performance: Over the past year, the fund has grown by more than 37%. Over the past three and five years, returns have come in at 10.16% and 10.30%, respectively.
10. iShares Core High Dividend ETF (HDV)
The iShares Core High Dividend ETF is another iShares fund designed to provide diversified exposure to relatively high dividend paying U.S.-based companies.
- Cost: With an expense ratio of 0.08%, the fund is one of the lowest-cost ETFs on the market today.
- Dividend Yield: The fund has generated compelling income over the past five years, with yields ranging from 3.12% to 5.18%.
- Asset Allocation: The vast majority of holdings in the ETF are well-established U.S.-based companies known for paying high dividends, generally trading with large market caps.
- Volatility: The vast majority of stocks in the fund are well-established companies known for producing compelling dividends. As a result, the ETF doesn’t experience much volatility, making it a relatively safe bet for the risk-averse investor.
- Market Capitalization: The vast majority of holdings in the ETF investment portfolio trade as large-cap stocks.
- Assets Under Management: The fund has more than $7 billion in assets under management. While it’s not the most popular ETF on the market, it’s definitely not the smallest, as there’s plenty of investor demand here.
- Dividend Growth: Over the past several years, the fund had a consistent history of increasing dividends. So, if dividend growth is your cup of tea, it may be the investment opportunity you’re looking for.
- Historic Performance: While the fund took a COVID-related hit, it has fully recovered, generating more than 23% gains over the past year. In the past three and five years, returns have been 8.36% and 7.13%, respectively.
As you can see from the list above, if you don’t have the time or the desire to do the research it takes to successfully invest in individual dividend stocks, there are plenty of ETFs to look into for strong opportunities.
However, as you dive into high dividend ETFs, it’s important to keep a couple of points in mind:
- Expense Ratios Differ. Expense ratios ultimately cut into your earnings so it’s important to pay close attention to them. Before accepting a higher-than-average expense ratio, make sure that the added cost has a history of resulting in larger gains.
- “Dividend ETF” Has a Broad Definition. Any ETF that makes dividend payments may be labeled a dividend ETF, but that doesn’t mean it pays the highest dividends. If you’re focused on earning income through your investments, pay close attention to dividend yield and dividend history.
- Emerging Markets Are Risky. Many of the highest-dividend-paying ETFs focus the brunt of their assets under management on emerging markets. Unfortunately, investing in emerging markets can be risky business, as these markets tend to hit hiccups that could lead to significant declines along the road to becoming developed markets.
- Popularity Equals Liquidity. Finally, it’s important to invest in ETFs with a large amount of assets under management because it means these are popular funds. With popularity comes liquidity. Investing in a relatively unknown ETF can make it difficult to pull your money out of the investment should you find yourself in a bind.
As is always the case in investing, research is the basis for any strong investment decision. Always take the time to learn about the investments you make and the people that manage them before risking your hard-earned dollars.