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Investors looking for regular income often lean on dividend stocks. But an easier way to harness stocks that make regular payments is to purchase dividend exchange-traded funds.
Like much in the world of ETFs, dividend ETFs offer a simple and straightforward solution to getting exposure to a specific investing niche — in this case, stocks that pay a regular dividend. You can take that dividend as income, or reinvest it back into the fund. (See this primer on how dividends work.)
Like a mutual fund, a dividend ETF can contain a selection of stocks that offer broad market exposure, or that focus on certain sectors based on industry, company size or region. Dividend ETFs, like all ETFs, trade like a stock throughout the market day, whereas mutual funds trade after each market close.
How to invest in dividend ETFs
A dividend ETF typically includes dozens, if not hundreds, of dividend stocks. That instantly provides you with diversification, which means greater safety for your payout. Even if a few of the fund’s stocks cut their dividends, the effect will be minimal on the fund’s overall dividend. A safe payout should be your top consideration in buying any dividend investment.
Here’s how to buy a dividend stock ETF:
1. Find a broadly diversified dividend ETF. You can typically find dividend ETFs by searching for them on your broker's website. (No broker? Here's how to open a brokerage account.)
Probably the safest choice is a low-cost fund that picks dividend stocks from the S&P 500 stock index. That offers a broadly diversified package of top U.S. companies.
2. Analyze the ETF. Make sure the ETF is invested in stocks (also called equities), not bonds. You’ll also want to check the following:
The dividend yield. This is how much a company pays out in dividends each year relative to its share price, and is usually expressed as a percentage.
5-year returns. Generally, higher is better.
Expense ratio. This is the ETF's annual fee, paid out of your investment in the fund. Look for an expense ratio that is under 0.50%, but lower is better.
Stock size. Dividend ETFs can be invested in companies with large, medium or small capitalization (referred to as large caps, mid caps and small caps). Large caps are generally the safest, while small caps are the riskiest.
3. Buy the ETF. You can buy ETFs just like you’d buy a stock, through an online broker. A good approach is to buy them regularly, to take advantage of dollar-cost averaging.
List of top 25 high-dividend ETFs
Below is a list of 25 high-dividend ETFs, ordered by dividend yield.
Global X SuperDividend ETF
Global X SuperDividend U.S. ETF
Global X MSCI SuperDividend Emerging Markets ETF
Global X MSCI SuperDividend EAFE ETF
iShares Emerging Markets Dividend ETF
First Trust Stoxx European Select Dividend Index Fund
First Trust Dow Jones Global Select Dividend Index Fund
WBI Power Factor High Dividend ETF
iShares International Select Dividend ETF
WisdomTree Emerging Markets High Dividend Fund
iShares Asia/Pacific Dividend ETF
Fidelity International High Dividend ETF
Invesco S&P Ultra Dividend Revenue ETF
First Trust Morningstar Dividend Leaders Index Fund
Invesco High Yield Equity Dividend Achievers ETF
SPDR S&P Global Dividend ETF
WisdomTree International High Dividend Fund
First Trust S&P International Dividend Aristocrats ETF
Xtrackers MSCI All World ex U.S. High Dividend Yield Equity ETF
Xtrackers MSCI EAFE High Dividend Yield Equity ETF
WisdomTree Global High Dividend Fund
SPDR S&P Emerging Markets Dividend ETF
Vanguard International High Dividend Yield ETF
Fidelity High Dividend ETF
SPDR S&P International Dividend ETF
Data current as of June 18, 2020.
» Need a brokerage account? Here are some of our top picks for ETFs.
For more, check out our full list of the best brokers for ETF investing.