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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.
» Need a brokerage account? Check out our list of the best brokers for ETF investing.
List of top 25 high-dividend ETFs
Below is a list of 25 high-dividend ETFs, ordered by dividend yield.
Annual dividend yield
Columbia Research Enhanced Value ETF
QRAFT Al-Enhanced U.S. Large Cap Momentum ETF
Global X NASDAQ 100 Covered Call ETF
Nationwide Risk-Managed Income ETF
Vesper U.S. Large Cap Short-Term Reversal Strategy ETF
JPMorgan Equity Premium Income ETF
Virtus WMC International Dividend ETF
ERShares Entrepreneurs ETF
Global X MSCI Pakistan ETF
WisdomTree International Dividend ex-Financials Fund
First Trust Indxx Global Natural Resources Income ETF
VictoryShares Emerging Market High Dividend Volatility Wtd ETF
Global X Nasdaq 100 Covered Call & Growth ETF
SPDR Portfolio S&P 500 High Dividend ETF
WisdomTree Emerging Markets High Dividend Fund
Impact Shares YWCA Women's Empowerment ETF
VictoryShares International High Div Volatility Wtd ETF
WisdomTree International High Dividend Fund
Principal International Multi-Factor ETF
iShares MSCI South Africa ETF
Pacer Global Cash Cows Dividend ETF
AllianzIM U.S. Large Cap Buffer10 Apr ETF
Overlay Shares Foreign Equity ETF
Invesco S&P Intl Developed High Dividend Low Volatility ETF
ALPS International Sector Dividend Dogs ETF
Data current as of November 9, 2021. Inverse, leveraged and hedged ETFs are excluded, as are ETFs with expense ratios over 1%.
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.
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Learn more about sector ETFs:
Disclosure: The author held no positions in the aforementioned investments at the original time of publication.