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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.
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.
25 high-dividend ETFs
Below is a list of 25 large-cap U.S. dividend ETFs, ordered by annual dividend yield.
» Need a brokerage account? Check out the best brokers for ETF investing.
Annual dividend yield
iShares Core S&P 500 ETF
Vanguard S&P 500 ETF
Vanguard Total Stock Market ETF
Vanguard Value ETF
Vanguard FTSE Developed Markets ETF
iShares Core MSCI EAFE ETF
Vanguard Growth ETF
Vanguard FTSE Emerging Markets ETF
iShares Core S&P Small-Cap ETF
iShares Core MSCI Emerging Markets ETF
iShares Russell 1000 Growth ETF
Vanguard Dividend Appreciation ETF
iShares Core S&P Mid-Cap ETF
iShares Russell 1000 Value ETF
iShares Russell 2000 ETF
Vanguard Mid-Cap ETF
Vanguard Total International Stock ETF
iShares MSCI EAFE ETF
Vanguard High Dividend Yield Index ETF
Vanguard Information Technology ETF
iShares Core S&P Total U.S. Stock Market ETF
Technology Select Sector SPDR Fund
Vanguard Small Cap ETF
Health Care Select Sector SPDR Fund
Schwab US Dividend Equity ETF
Data current as of Aug. 2, 2022. Inverse, leveraged and hedged ETFs are excluded, as are ETFs with expense ratios over 1%. ETFs are initially filtered for assets under management to ensure higher-risk ETFs are excluded.
High dividend ETFs may come with higher risk. Always read the fine print and investigate dividends that seem too good to be true.
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.
Assets under management (AUM). This refers to the total market value of the assets a fund manages. The AUM gives an indication of the size of the fund. Funds with a low AUM promising high dividends may be risky.
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.
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Learn more about sector ETFs:
Neither the author nor editor held positions in the aforementioned investments at the time of publication.