Finding the best dividend exchange-traded fund can help optimize your portfolio’s performance to achieve the best risk-adjusted returns possible. But not all dividend ETFs use the same methodology. Dividend ETFs can be separated into high-dividend yield ETFs and dividend appreciation ETFs.
High-dividend yield ETFs typically track indexes focusing on stocks with the highest yields.
To select the best dividend ETFs in 2024, we screened multiple high-dividend yield ETFs and dividend appreciation ETFs based on management style, expense ratios, dividend yields, ratings and total assets. ETFs with high turnover rates and annual yields of less than 1.75% didn’t make the cut.
Why trust our investing experts
Experienced fund analysts select our best fund selections based on a screening of several must-have metrics. Some of these metrics include but are not limited to assets under management, expense ratio, strategy, management, minimum investment requirements, turnovers and fees. You can read more about our methodology below.
- 150+ dividend ETFs screened.
- 5-star rating from Morningstar.
- 3 levels of fact checking.
- 3-step editorial review.
Best dividend ETFs
- Vanguard High Dividend Yield ETF (VYM).
- Schwab U.S. Dividend Equity ETF (SCHD).
- WisdomTree U.S. LargeCap Dividend Fund (DLN).
- .
- iShares Core Dividend Growth ETF (DGRO).
- .
- WisdomTree U.S. Quality Dividend Growth Fund (DGRW).
Vanguard High Dividend Yield ETF (VYM)
Expense ratio
0.06%
Total assets
$52.6 billion
What you should know
Vanguard is known for offering low-cost ETFs sporting high diversification, and VYM is no exception. The ETF tracks the FTSE High Dividend Yield Index, which currently consists of more than 450 large-cap U.S. stocks screened for high yields. VYM is well-diversified, with holdings across all 10 stock market sectors. But there is a slight dominance of assets in the consumer staples and financial services sectors. On the plus side, the fund has a low turnover.
Pros and cons
Pros
- High diversification across sectors.
- Low expense ratios.
- Low fund turnover.
Cons
- Slight concentration of financial sector stocks.
- Low exposure to mid-cap stocks.
- No exposure to international stocks.
More details
- Morningstar rating: 4 stars.
- Category: U.S. large-cap value.
Schwab U.S. Dividend Equity ETF (SCHD)
Expense ratio
0.06%
Total assets
$53.8 billion
What you should know
Investors looking for a dividend ETF with a quality screener can opt for SCHD, which tracks the Dow Jones U.S. Dividend 100 Index. The 100 stocks in this ETF are selected based on the quality and sustainability of dividends and strong financial ratios. Compared to Vanguard’s high-dividend ETF, SCHD has a much more concentrated portfolio, which can be desirable for investors seeking a “higher conviction” holding. In fact, there is a high concentration among three equities: Amgen (AMGN), Cisco (CSCO) and Abbvie (ABBV). SCHD boasts a juicy dividend of more than 3%, the highest among our list of best dividend ETFs.
Pros and cons
Pros
- Higher-than-average yields.
- Holdings screened for quality.
- Dividends screened for sustainability.
Cons
- Concentration in health care and financial sector stocks.
- No exposure to small-cap stocks.
- A portfolio of fewer holdings and higher turnover.
More details
- Morningstar rating: 5 stars.
- Category: U.S. large-cap value.
WisdomTree U.S. LargeCap Dividend Fund (DLN)
Expense ratio
0.28%
Total assets
$3.9 billion
What you should know
DLN tracks the WisdomTree U.S. LargeCap Dividend Index, which selects roughly 300 of the largest companies by market cap from the broader WisdomTree U.S. Dividend Index. However, unlike some dividend ETFs, DLN weights its holdings based on its projected dividends instead of just the market cap. As a result, companies projected to pay higher yields are granted a higher weighting in the ETF thanks to this fundamentally based weighting methodology.
Pros and cons
Pros
- Balance of income and growth.
- A decent diversification.
- Holdings weighted by projected yields.
Cons
- Higher fund turnover.
- Higher expense ratio.
- Lower dividend yield.
More details
- Morningstar rating: 5 stars.
- Category: U.S. large-cap value.
SPDR S&P Dividend ETF (SDY)
Expense ratio
0.35%
Total assets
$20.3 billion
What should you know
For another way to target dividend aristocrats, investors can opt for SDY, which tracks the S&P High Yield Dividend Aristocrats Index. SDY screens its stocks for at least 20 years of consecutive dividend growth history. Stocks within the fund are weighted by yield and adjusted quarterly. The ETF weights its 120-plus current holdings. With its methodology, there is less exposure to specific sectors, such as technology and communication services. This approach also contrasts with other dividend ETFs, which are market-capitalized or quasi-equal weighted.
Pros and cons
Pros
- Higher weighting to higher-yielding stocks.
- Holdings have a history of dividend growth.
- Long performance history.
Cons
- Concentrated portfolio of fewer holdings.
- High expense ratio.
- Low exposure to certain sectors.
More details
- Morningstar rating: 4 stars.
- Category: U.S. midcap value.
WisdomTree U.S. Quality Dividend Growth Fund (DGRW)
Expense ratio
0.28%
Total assets
$12.3 billion
What you should know
DGRW implements a more stringent approach to dividend investing by tracking the proprietary WisdomTree U.S. Quality Dividend Growth Index. The index screens for dividend-paying stocks with growth and quality factors based on higher long-term earnings growth expectations. DGRW also uses a special weighting methodology based on a stock’s projected upcoming payout rate. Stocks projected to pay more dividends are weighted more heavily. The total portfolio of DGRW includes roughly 300 equities, with the highest weighted sector in technology.
Pros and cons
Pros
- Some exposure to growth stocks.
- Holdings are screened for quality factors.
- Holdings weighted by projected yields.
Cons
- Higher fund turnover.
- Higher expense ratio.
- Lower dividend yield.
More details
- Morningstar rating: 5 stars.
- Category: U.S. large-cap blend.
Compare the best dividend ETFs
| ETF (TICKER) | CATEGORY | 10-YEAR ANNUALIZED RETURN (AS OF MARCH 1) | EXPENSE RATIO |
|---|---|---|---|
Vanguard High Dividend Yield ETF (VYM) | U.S. large value | 9.38% | 0.06% |
Schwab US Dividend Equity ETF (SCHD) | U.S. large value | 11.03% | 0.06% |
WisdomTree US LargeCap Dividend ETF (DLN) | U.S. large value | 10.01% | 0.28% |
Proshares S&P 500 Dividend Aristocrats ETF (NOBL) | U.S. large value | N/A | 0.35% |
iShares Core Dividend Growth ETF (DGRO) | U.S. large value | N/A | 0.08% |
SPDR S&P Dividend ETF (SDY) | U.S. mid value | 9.41% | 0.35% |
WisdomTree US Quality Dividend Growth Fund (DGRW) | U.S. large blend | 12.04% | 0.28% |
Methodology
Our curated rankings of the top dividend ETFs was created by screening a list of all available U.S. listed dividend ETFs based on the following “must-have” metrics:
- Morningstar rating. All of the ETFs selected have at least a 5-star rating from Morningstar. This is a quantitative, rearward-looking measure of an ETF’s historical performance.
- Total assets. All the selected ETFs currently have at least $1 billion in assets under management. A higher AUM indicates greater investor confidence and interest in an ETF.
- 12-month dividend yield. All selected ETFs have a trailing 12-month yield of at least 1.75%, greater than the SPDR S&P 500 ETF (SPY). It is important to note that an ETF’s dividend yield can fluctuate, especially as its share price changes.
- Expense ratios. To be considered for this list, a dividend ETF must have a net expense ratio of less than 0.4%. All else being equal, a lower expense ratio means higher net returns for ETF investors.
- Management style. All ETFs on this list are passively managed by tracking a benchmark dividend stock index. None of the ETFs may engage in active stock-picking or utilize derivatives to enhance income or hedge risk.
This criteria allows investors to focus on dividend ETFs that have historically performed well, are currently popular, are managed by established firms with a proven track record, provide a higher yield than the market, are attractively priced relative to peers, and are managed passively with low fees.
An experienced ETF analyst selected the ETFs above, but they may not be right for your portfolio. Before purchasing any of these ETFs, do plenty of research to ensure they align with your financial goals and risk tolerance.
Why other dividend ETFs didn’t make the cut
We excluded actively managed dividend ETFs due to their higher expense ratios and greater complexity. For most investors, sticking to low-cost index ETFs is ideal, given that the majority of actively managed ETFs tend to underperform their passive counterparts.
The rationale for this decision was based on the scorecard results from the S&P Dow Jones Indices (SPIVA). This scorecard measures the performance of actively managed funds worldwide against their index benchmarks. Regarding U.S. listed funds, 93.4% underperformed the as of December 2022, over a trailing 15-year period.
That isn’t to say there is no use case for actively managed dividend ETFs. Some investors may prefer these ETFs for a chance at outperforming the market, generating higher income or hedging risk. However, for most investors, a passively managed dividend ETF tracking an index likely offers the best bang for your buck.
Finally, this list excludes international dividend ETFs. While these ETFs can offer high yields and diversification, they come with higher expense ratios and lower tax efficiency than their U.S.-only counterparts. In addition, most of these ETFs did not achieve a sufficiently high Morningstar rating.
Final verdict
Dividend ETFs can be an excellent core holding in an income-oriented investment portfolio. Compared with picking individual dividend stocks, a dividend ETF offers greater simplicity, accessibility, and diversification.
Investors should focus on their strategies, holdings, and expense ratios when comparing dividend ETFs instead of solely chasing yields. Understanding the difference between U.S. and international holdings, high yields versus dividend growth and equity styles will help you find the right ETF.
Our recommendation for the best overall dividend ETF is the Schwab U.S. Dividend ETF (SCHD), thanks to a combination of high Morningstar rating, rigorous index methodology, low expense ratio, competitive yields and strong historical performance.
What is a dividend ETF?
A dividend ETF is a fund that holds a portfolio of different dividend stocks based on a methodology. Like stocks, dividend ETFs trade on an exchange throughout the day and can be purchased via various brokerage services. Dividend ETFs can be actively or passively managed and hold U.S. or international dividend stocks.
Diving deeper, there are variations in the objectives of dividend ETFs. Some prioritize high yields, seeking to provide investors with a substantial, regular income. These can be particularly appealing in times when interest rates are low. However, a higher yield sometimes flags higher risks, which might indicate that the market believes the dividend is not sustainable.
On the other hand, some ETFs emphasize dividend growth. Rather than going for the immediate high yield, they zero in on companies with a history of steadily increasing their dividends over the years. Such companies often portray greater stability and robust financial health but may not have the highest present yields.
How to invest in dividend ETFs
Investing in dividend ETFs largely mirrors investing in any other ETF. The journey starts with opening a brokerage account. Once you’ve opened and funded your account, you can search for the dividend ETF of your choice by entering its ticker symbol.
When you’re ready to purchase, you specify the number of shares you wish to buy and the type of order – a market order, which buys at the current price, or a limit order, where you set a specific price you’re willing to buy. After confirming all details, you submit the order.
A unique aspect of dividend ETFs is the dividend payment itself. Dividends can be distributed monthly, quarterly, semi-annually or annually, depending on the ETF.
These dividend payments might be taxed at varying rates. It’s important to distinguish between qualified dividends, which can benefit from lower tax rates, and other dividends, which might be taxed at your ordinary income rate.
Some brokerages may offer a feature known as a dividend reinvestment plan (DRIP). A DRIP automatically reinvests your dividends to purchase more shares of the ETF, rather than receiving the dividend as cash. This can be advantageous as it allows your investment to compound, growing over time without the immediate need for you to manually reinvest those dividends.
A DRIP is an efficient way to incrementally increase your holdings and maximize the compounding effect, particularly for investors who prefer to set their investments on a more hands-off approach and minimize brokerage fees.
Frequently asked questions (FAQs)
When considering what to look for in a dividend ETF, investors should go beyond assessing yields and also examine the ETF’s benchmark index, underlying holdings, expense ratio, historical volatility and total assets. Investors should also consider the overall reputation of the ETF’s manager and determine if their investment philosophy aligns with their goals.
There is no “king” of dividend ETFs, per se. To qualify as a dividend king, a stock must have increased its dividends consecutively for at least the past 50 years. Currently, some ETFs may provide exposure to certain dividend king stocks, but no ETF currently holds only dividend king stocks.
Some ETFs focus solely on dividend aristocrats. These are stocks that have paid out and grown dividends for at least 25 consecutive years.
Dividend ETFs come with advantages and drawbacks that investors need to consider. On the upside, these ETFs can offer potential tax efficiencies, especially with qualified dividends. Additionally, by investing in dividend ETFs, one can receive consistent investment income, which can be particularly appealing to those looking for passive income streams. Moreover, these ETFs often provide exposure to a diverse stock style, like dividend growth and quality, allowing investors a broader spectrum of opportunities within one investment vehicle.
On the flip side, dividend ETFs might sometimes underperform compared to a benchmark index, primarily if the focus is solely on high-yielding companies.
Financial challenges can also lead companies to cut their dividends, which directly impacts the returns from dividend ETFs, especially during market downturns. Furthermore, while ETFs are generally lauded for their cost-effectiveness, dividend-focused ETFs can have higher fees than their plain index ETF counterparts, thereby affecting the long-term net returns for investors.
