ETFs are a great way to invest if you want to flexibility of trading stocks throughout the day but like the diversification offered by mutual funds.
Dividends can add an important income stream, and dividend stocks tend to be resilient during downturns, but if you have a limited amount to invest it may be hard to get the diversification you want by buying individual stocks.
Dividend ETFs combine the virtues of dividend stocks and ETFs, buying a diversified and liquid package of dividend-bearing stocks. Here are some top picks.
Best Dividend ETFs
If you’re looking to invest in a dividend-paying ETF, we’ve found some of the best options and compared them.
BEST FOR LOW FEES
Vanguard High Yield Dividend ETF
- AUM: $61.6 billion
- Focus: Cross-industry companies with above-average dividend yield.
- Expense Ratio: 0.06%
- Yield: 3.13%
Summary: Vanguard’s High Yield Dividend ETF is one of the lowest-cost ways to invest in a fund with a solid dividend yield. Learn more
BEST FOR GLOBAL EXPOSURE
SPDR S&P Global Dividend ETF
- AUM: $234.77 million
- Focus: Internationally diversified list of companies with high yields
- Expense Ratio: 0.40%
- Yield: 5.10%
Summary: SPDR’s global dividend ETF lets you get international diversification. It holds no more than 20 stocks from one country and 35 from the same sector. Learn more
BEST FOR DIVIDEND ARISTOCRATS
ProShares S&P 500 Dividend Aristocrats ETF
- AUM: $11.08 billion
- Focus: Dividend aristocrats – companies with 25 consecutive years of dividend growth
- Expense Ratio: 0.35%
- Yield: 2.59%
Summary: This ETF invests in large blue chips with a long history of consistently growing their dividends. Learn more
BEST FOR ENERGY SECTOR FOCUS
The Energy Select Sector SPDR Fund
- AUM: $39.11 billion
- Focus: Energy stocks
- Expense Ratio: 0.10%
- Yield: 3.85%
Summary: his ETF focuses on energy companies, which are known for strong dividend payments.
Learn more
Vanguard High Yield Dividend ETF
🏆 Best For Low Fees
Summary: This low-cost ETF offers steady returns and a strong dividend payment by focusing on large-cap stocks with higher-than-average yields.
➕ Pros:
- Low expense ratio
- Large amount of assets under management
➖ Cons:
- Lower yield than other ETFs
- High share price
Description
Vanguard is an investment company known for pioneering low-cost mutual funds and ETFs. Its High Yield Dividend ETF continues that trend, offering the lowest expense ratio among funds on our list of favorites.
Like most of Vanguard’s low-cost funds, this ETF doesn’t rely on active management. Instead, it aims to track an index, the FTSE High Dividend Yield Index. This index aims to “represent the performance of companies after implementing a forecast dividend yield ranking process.” In short, it aims to track businesses that pay higher dividends than average.
If you’re looking for a simple, low-cost fund, or you already invest through Vanguard and want to keep things simple, this ETF might be right for you.
SPDR S&P Global Dividend ETF
🏆 Best for Global Exposure
Summary: Though more expensive than other funds, the SPDR S&P Global Dividend ETF offers strong diversification and high yields.
➕ Pros:
- International and industry diversification
- High yield
➖ Cons:
- Low AUM may impact liquidity
- Higher expense ratio
Description
If you’re looking for international diversification while pursuing dividend yield, the SPDR S&P Global Dividend ETF offers that. The fund commits to including the top 100 qualified stocks by dividend yield while ensuring it holds no more than 20 stocks from one country, 35 from each sector, and no more than 3% of its assets in any one share.
These restrictions lead it to focus largely on developed markets, with shares from Canada, the US, Japan, Hong Kong, Switzerland, and the UK making up more than 75% of the fund’s holdings.
The fund offers a high yield of more than 5%, but it has relatively few assets and just over 4 million shares outstanding. That may lead to lower liquidity than other funds, making it harder to buy and sell at your desired price.
ProShares S&P 500 Dividend Aristocrats ETF
🏆 Best For Dividend Aristocrats
Summary: This ETF only invests in businesses with 25 or more consecutive years of increasing dividends.
➕ Pros:
- Focuses on a popular stock type – dividend aristocrats
- High AUM
➖ Cons:
- Lower dividend yield than other options
- Less diversification than in other ETFs
Description
The concept of dividend aristocrats is relatively well-known. It describes a company that has increased its dividend every year for at least the past twenty-five years, though many on the list have boosted their dividends annually for nearly twice as long.
The ProShares S&P 500 Dividend Aristocrats ETF gives investors exposure to this popular type of stock. The companies among the dividend aristocrats tend to be large, household names, such as Chevron, Aflac, Johnson & Johnson, 3M, or Walgreens. That helps the fund maintain relatively low volatility.
Though the fund focuses on dividend appreciation, that doesn’t directly correlate to high dividends. Its yield is solid, but not incredibly high. It’s also very focused on American companies, with 94% of its assets invested in US stocks, making it a less diversified ETF than some competitors.
The Energy Select Sector SPDR Fund
🏆 Best For Energy Sector Focus
Summary: The energy sector and utilities are known for their high dividend yield. This fund lets you focus specifically on the energy industry to capture high dividends.
➕ Pros:
- High yield
- Low expense ratio
- High AUM
➖ Cons
- Very limited diversification
Description
Energy is a basic sector, one of those things that people buy regardless of the overall economy or their personal financial situation. That’s helped energy businesses earn a reputation for stability and high dividend yield.
The Energy Select Sector SPDR Fund focuses on high-quality businesses in the oil, gas, and energy equipment sectors, letting investors easily get exposure to this area of the economy. Of course, that precise focus can be a drawback. If the energy sector starts to fare poorly, this fund has no diversification to offset the losses.
The fund is also heavily invested in a few specific companies, giving them an outsized influence on the share price. More than 40% of its assets are invested in just two companies: Exxon Mobil and Chevron.
The Best Dividend ETFs Compared
| Fund | AUM | Focus | Expense Ratio | Yield | 5-Year Change in ETF Price |
|---|---|---|---|---|---|
| Vanguard High Yield Dividend ETF | $61.6 billion | Cross-industry, companies with above-average dividend yields | 0.06% | 3.13% | 8.22% |
| SPDR S&P Global Dividend ETF | $234.77 million | Internationally diversified list of companies with high yields | 0.40% | 5.10% | 1.77% |
| ProShares S&P 500 Dividend Aristocrats ETF | $11.08 billion | Dividend aristocrats – companies with 25 consecutive years of dividend growth | 0.35% | 2.59% | 9.31% |
| The Energy Select Sector SPDR Fund | $39.11 billion | Energy stocks | 0.10% | 3.85% | 9.83% |
How to Choose a Dividend ETF
Choosing a dividend ETF isn’t as simple as finding the one with the highest yield and investing in it. You need to take the time to consider your goals. You could be focusing on dividends for a few reasons.
The most obvious reason to focus on dividends is that you want to turn your investment portfolio into a source of cash flow. In this case, a high dividend yield is important. However, recall that a high dividend isn’t always a good thing. Dividends can change at any time, and incredibly high dividends may not be sustainable in the long run.
Another reason to focus on dividend-paying businesses is that many people perceive them as more stable than companies that don’t pay dividends. If low volatility and a defensive investment are your goals, looking for an ETF that focuses on steady dividends, like a dividend aristocrat ETF, might be the right path for you.
Your goals should guide your choice of dividend ETF, but remember key investing concepts like diversification and only investing money you can afford to lose.
Pros and Cons of Dividend ETFs
Dividend ETFs have many perks, but it’s important to consider the pros and cons before investing.
Like all ETFs, dividend ETFs have the benefit of diversification. Buying shares in one fund gets you exposure to dozens or hundreds of companies at once. They also have the benefit of offering cash flow through their regular dividend payments.
One major drawback of dividends ETFs is tax inefficiency. Whenever you receive a dividend, you must pay tax on those dividends. Depending on a few factors, such as how long you’ve held the shares and where the company paying dividends is located, you may have to pay taxes at your regular income tax rate or at a lower qualified dividends rate.
Either way, you’re forced to pay income taxes. With non-dividend-paying investments, you have more control over when you pay taxes because you don’t owe taxes until you sell.
Methodology
To determine our list of the top dividend ETFs, we considered the following factors:
- AUM: The more assets a fund has and the more shares there are outstanding, the less likely investors are to face liquidity issues.
- Expense ratio: We looked for funds with relatively low expense ratios to ensure investors weren’t paying high fees.
- Dividend yield: Dividend-focused ETFs should have a reasonably high dividend yield.
- Manager reputation: We considered the reputation of the company behind the mutual fund to ensure it had a history of effective fund management.
- Tracking error: Some ETFs wind up trading for a different value than what their true value should be based on their underlying holdings. We ensured that the funds on our list had minimal tracking errors.
