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Bond prices have plummeted due to rising interest rates, making dividend stocks the better option. However, owning a diversified portfolio of excellent dividend stocks is even simpler with dividend ETFs than it is with purchasing each stock separately.
Forbes Advisor’s list of the top dividend exchange-traded funds We have looked for a balance between actively managed funds that aim to outperform the market and low-fee, passive funds. The distribution dividend, or dividend yield over the previous 12 months, is listed.
Our editors are dedicated to providing you with objective assessments and data. Our editorial content is not influenced by advertisers. We measure financial products and companies equally because we employ data-driven methodologies. More information about our editorial policies and the investment process used to determine the ratings can be found below.
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In today’s volatile market, investors are increasingly seeking income-generating assets to supplement their portfolios. High-dividend ETFs, which offer a diversified basket of stocks with a history of paying regular dividends have become a popular choice for income-oriented investors. This comprehensive guide delves into the world of high-dividend ETFs providing insights into their benefits, risks, and key considerations for investors.
What are High-Dividend ETFs?
High-dividend ETFs are exchange-traded funds that invest in a portfolio of stocks with a history of paying high dividends These ETFs aim to provide investors with a steady stream of income through regular dividend payouts, making them an attractive option for income-seeking investors, especially those nearing retirement or seeking to supplement their retirement income
Benefits of High-Dividend ETFs:
- Diversification: High-dividend ETFs offer instant diversification across multiple sectors and companies, reducing the risk associated with investing in individual stocks.
- Income Generation: These ETFs provide regular dividend payouts, offering investors a consistent source of income.
- Liquidity: High-dividend ETFs trade on major stock exchanges, providing investors with easy access to buy and sell shares.
- Tax Advantages: Dividends received from ETFs are typically taxed at lower rates than interest income from bonds, making them an attractive option for tax-conscious investors.
Risks of High-Dividend ETFs:
- Volatility: High-dividend ETFs are still subject to market fluctuations, and their share prices can decline in response to market downturns.
- Dividend Cuts: Companies may reduce or suspend dividend payments due to economic conditions or other factors, impacting the ETF’s income generation.
- Expense Ratios: High-dividend ETFs typically have higher expense ratios than broad-market ETFs, which can eat into returns.
Key Considerations for Investors:
- Investment Horizon: High-dividend ETFs are suitable for long-term investors seeking income generation over an extended period.
- Risk Tolerance: Investors should consider their risk tolerance and choose ETFs with a dividend yield that aligns with their risk appetite.
- Expense Ratios: Compare expense ratios among different high-dividend ETFs to minimize the impact on returns.
- Underlying Holdings: Analyze the ETF’s underlying holdings to ensure they align with your investment goals and risk tolerance.
- Dividend History: Evaluate the ETF’s historical dividend payout record and the consistency of dividend payments.
Top High-Dividend ETFs:
- Invesco S&P Ultra Dividend Revenue ETF (RDIV): This ETF offers a high dividend yield of 4.87% and invests in a diversified portfolio of high-dividend-paying stocks.
- SPDR Portfolio S&P 500 High Dividend ETF (SPYV): With a dividend yield of 4.49%, this ETF tracks the S&P 500 High Dividend Index, providing exposure to large-cap U.S. companies with a history of high dividend payouts.
- First Trust Morningstar Dividend Leaders Index Fund (FDL): This ETF offers a dividend yield of 4.36% and invests in a portfolio of companies with a strong track record of dividend growth.
- Invesco Dow Jones Industrial Average Dividend ETF (DJD): With a dividend yield of 4.25%, this ETF tracks the Dow Jones Industrial Average Dividend Index, providing exposure to blue-chip companies with a history of dividend payments.
- ALPS Sector Dividend Dogs ETF (SDOG): This ETF offers a dividend yield of 4.14% and invests in a portfolio of high-dividend-paying stocks from various sectors.
High-dividend ETFs can be a valuable tool for income-oriented investors seeking to supplement their income or generate income in retirement. By carefully considering the benefits, risks, and key factors, investors can choose high-dividend ETFs that align with their investment goals and risk tolerance. Remember, diversification, thorough research, and a long-term investment perspective are crucial for success in the world of high-dividend ETFs.
Types of Dividend ETFs
Dividend ETFs come in a variety of forms, including index funds, geographical areas, and premium dividend stocks like dividend aristocrats. Others concentrate on preferred stocks, utilities, REITs, and other stock market sectors that are recognized for providing high yields.
We’ve included a few top dividend ETFs for each major category below. Remember that these are not recommendations for any specific fund. These are merely intended to provide you with an idea of the kinds of funds you could look into when looking for the best dividend ETF for you.
- Diversified Dividend ETFs. Companies that pay out dividends at a rate higher than average are included in high-dividend ETFs. Higher dividend paying companies are typically associated with higher risk profiles and higher levels of price volatility.
- International Dividend ETFs. International dividend ETFs operate similarly to their domestic high dividend equivalents; they just invest in foreign businesses rather than those with headquarters in the U.S. S. This kind of international exposure can further diversify your portfolio. They might pay more in taxes on their dividends than the U S. companies. Consult a tax expert if you plan to primarily rely on foreign dividend exchange-traded funds.
- Real Estate Dividend ETFs. Investment trusts for real estate own stock in businesses that purchase or finance income-producing real estate. According to the law, REITs are required to distribute 90% of their income to shareholders, making them the preferred option for wealthy investors looking for large dividend payouts.
- Dividend Aristocrat ETFs. As the gold standard of dividend-paying stocks, dividend aristocrats are the first choice for investors seeking reliable, continuous dividend income.
Schwab U.S. Dividend Equity ETF (SCHD)
10-Year Avg. Ann. Return
The Schwab U.S. Dividend Equity ETF sports the lowest expense ratio among our picks. That’s a selling point for this passive fund. Investors have come to expect passive funds to outperform actively managed funds. That’s generally true, although active management still tops rivals in categories such as corporate bonds and real estate.
SCHD tracks the Dow Jones U. S. Dividend 100 Index. This benchmark concentrates on stocks with dividends that are “quality” and sustainable, according to SCHD. This means that the index and SCHD favor companies that have the potential to continue paying out dividends to their investors from their profits.
Similar to the majority of our selections, SCHD prioritizes value and core stocks over growth stocks. Value stocks typically trade for less than what their underlying metrics—like dividends, earnings, and sales—seem to warrant. Core stocks straddle the border between value and growth stocks.
SCHD is well diversified. Approximately 90% of its assets are distributed among the following seven sectors: financial services, energy, consumer goods, healthcare, consumer staples, and technology.
Top 5 Monthly Dividend ETFs with High Growth
FAQ
What ETFs pay the best dividends?
|
Ticker
|
Name
|
Annual dividend yield
|
|
RDIV
|
Invesco S&P Ultra Dividend Revenue ETF
|
4.87%
|
|
SPYD
|
SPDR Portfolio S&P 500 High Dividend ETF
|
4.49%
|
|
FDL
|
First Trust Morningstar Dividend Leaders Index Fund
|
4.36%
|
|
DJD
|
Invesco Dow Jones Industrial Average Dividend ETF
|
4.25%
|
Which ETF gives the highest return?
|
Symbol
|
Name
|
5-Year Return
|
|
VONG
|
Vanguard Russell 1000 Growth ETF
|
17.71%
|
|
IWF
|
iShares Russell 1000 Growth ETF
|
17.60%
|
|
KCE
|
SPDR S&P Capital Markets ETF
|
17.48%
|
|
QTEC
|
First Trust NASDAQ-100 Technology Sector Index Fund
|
17.34%
|
Which Vanguard ETFs pay the highest dividends?
|
Symbol Symbol
|
ETF Name ETF Name
|
1 Year 1 Year
|
|
VIG
|
Vanguard Dividend Appreciation ETF
|
18.41%
|
|
VYM
|
Vanguard High Dividend Yield Index ETF
|
16.14%
|
|
VYMI
|
Vanguard International High Dividend Yield ETF
|
15.13%
|
|
VIGI
|
Vanguard International Dividend Appreciation ETF
|
10.56%
|
Which fund pays highest dividends?
|
Fund
|
Expense Ratio
|
30-day SEC Yield
|
|
American Funds Capital Income Builder (CIBFX)
|
0.66%
|
3.4%
|
|
JPMorgan Equity Premium Income Fund (JEPAX)
|
0.85%
|
6%
|
|
Fidelity Floating Rate High Income Fund (FFRHX)
|
0.72%
|
8.8%
|
|
Baird Intermediate Bond Fund (BIMSX)
|
0.55%
|
4.2%
|