While many investors can fixate on share price, dividends are an important part of any long-term strategy. That’s because the regular paydays delivered by dividend stocks can provide a hedge against short-term declines or a tailwind that boosts overall performance in the long term. They can also offer a much-needed stream of income in retirement that prevents the need to sell off assets to raise cash and pay your bills.
Whatever your investing needs, there’s probably a place for dividend exchange-traded funds, or ETFs, in your portfolio. These diversified vehicles allow you to buy into a basket of dividend stocks in a single holding — and in certain funds, you’ll also find a strategic angle that may fit well with your personal investing goals.
With that in mind, here are seven of the best dividend ETFs to buy now:
| Dividend ETF | Trailing dividend yield (as of June 21 close) |
| Vanguard Dividend Appreciation ETF (ticker: VIG) | 2% |
| Global X SuperDividend ETF (SDIV) | 15.1% |
| JPMorgan Equity Premium Income ETF (JEPI) | 11.5% |
| ProShares S&P 500 Aristocrats (NOBL) | 2% |
| Vanguard International High Dividend Yield ETF (VYMI) | 4.6% |
| Global X U.S. Preferred ETF (PFFD) | 6.6% |
| Franklin U.S. Low Volatility High Dividend Index ETF (LVHD) | 3.5% |
Largest Dividend ETF: Vanguard Dividend Appreciation ETF (VIG)
One of the largest ETFs of any kind as measured by assets, the nearly $69 billion Vanguard Dividend Appreciation ETF offers diversified exposure to large dividend-paying stocks in the U.S. The fund comprises more than 300 companies, led by familiar names including Microsoft Corp. (MSFT), Apple Inc. (AAPL), UnitedHealth Group Inc. (UNH) and Exxon Mobil Corp. (XOM).
Unfortunately, these four big stocks represent about 16% of the portfolio by themselves. That not only makes VIG a bit top heavy, but also keeps the dividends in check considering that both Apple and Microsoft currently yield less than 1%. In fact, the headline yield of this Vanguard dividend fund is less than 2%, compared with an average of about 1.6% for the broader S&P 500. You don’t get much more income out of this fund than you’d find by buying the entirety of this large-cap index, but it’s still worth noting because of its size and established nature.
It is also favored by Morningstar analysts who give it a gold badge, indicating they have the most conviction that VIG will outperform its index or peers over a market cycle.
Highest-Yielding Dividend ETF: Global X SuperDividend ETF (SDIV)
Of course, part of the reason that VIG doesn’t offer huge yield is that it’s spread across hundreds of the largest stocks on Wall Street, and covers stocks like Apple that only pay nominal dividends to shareholders. If you really want yield, you have to take a more tactical approach — like the one SDIV offers by prioritizing payouts, regardless of company size or geography.
This $760 million fund holds 104 hand-picked stocks for a more focused list of holdings. About 32% of its assets are in real estate, with materials companies coming in as the second most popular sector at almost 19%. It’s also international, with only about 31% of assets in the U.S.
“In addition to this dividend screen, the strategy also offers a low volatility screening component which potentially offers the ability for investors to mitigate a level of systematic risk within their income portfolios,” says Rohan Reddy, director of research at Global X ETFs. “During heightened levels of uncertainty within the broader U.S. macroeconomy, we believe that having access to a dividend strategy that offers an additional quality-control overlay is prevalent to maintain consistent income and drive potential returns.”
Based on the last 12 months of payouts, you will generate as much as 15.1% yield in this high dividend ETF — nearly seven times more than the prior fund. There’s clearly more risk with this kind of targeted approach, but if you’re after the biggest possible yield, SDIV may be worth a look despite its more aggressive nature.
It’s worth noting that Morningstar’s analysts are bearish on SDIV’s prospects, giving it only one star and a neutral badge, suggesting the team isn’t confident in its ability to outperform going forward.
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Other Dividend ETFs
As with many things in life, bigger isn’t always better. Many investors may find smaller funds more attractive than the aforementioned Vanguard fund, or they may find a higher-yield fund with more volatility better suits their investment style.
It’s a great big world of dividend funds out there, so here are a few more examples of possibilities that could fit better with your portfolio:
JPMorgan Equity Premium Income ETF (JEPI)
Another high yielder, JEPI boasts an 11.5% trailing-12-month yield. The fund combines a bottom-up fundamental stock-picking approach with a call options strategy to enhance monthly income. It has a smaller portfolio of 135 names with about 15.3% of its $26.8 billion assets in the top 10 names, most of which you’ll recognize, including Adobe Inc. (ADBE), Microsoft, Amazon.com Inc. (AMZN) and Hershey Co. (HSY). While JEPI’s expense ratio is a reasonable 0.35%, it has a high turnover of 195%, which can add to overall costs of the fund.
ProShares S&P 500 Aristocrats (NOBL)
One way to look for dividend stocks is to screen for yield, but another method involves focusing on consistency in payouts. That’s what NOBL offers, via a portfolio of more than 65 “dividend aristocrats” from the S&P 500 that have increased their dividend payouts for 25 consecutive years or more. That is a particularly meaningful range right now, reaching back to before the dot-com bust of the 2000s, and through the 2008 financial crisis and recent pandemic-related disruptions. The dividends aren’t always impressive from a yield perspective, of course, with a current 30-day SEC yield of only 2%, but you do have the potential for future growth in those paydays with NOBL.
Vanguard International High Dividend Yield ETF (VYMI)
VYMI offers a yield of 4.6% thanks to a focus on high-yield opportunities outside the U.S. Right now, Japan leads the portfolio’s allocations at around 13.5% of holdings, followed by the United Kingdom at 11.8% and Australia at just under 8%. But to be clear, these aren’t unknown or risky names — they’re multinationals you may recognize such as Dutch oil giant Shell PLC (SHEL) and Japanese automaker Toyota Motor Corp. (TM). If you want a bit more yield with some geographic diversification, this Vanguard fund is a good fit.
Global X U.S. Preferred ETF (PFFD)
“Preferred ETFs present an enticing choice for income-focused investors, as they primarily invest in preferred stocks that combine features of both stocks and bonds,” Reddy says. “Preferreds offer fixed dividends akin to bonds but enjoy the dividend tax treatment of common stocks.” PFFD invests in preferred stocks in the U.S. to generate a 12-month yield of 6.6%. It pays distributions monthly and costs only 0.23%, making it a great pick for income investors.
Franklin U.S. Low Volatility High Dividend Index ETF (LVHD)
If you’re looking for yield but don’t want to take on a ton of risk, then this low-volatility offering may be worth considering. The payout is currently about 3.5%, showing this dividend ETF is built for income, and its holdings are also selected based on companies that show a lower realized volatility in both price and earnings over the last year. The result is a selective list of 125 companies built for dividends and stability that include software giant Cisco Systems Inc. (CSCO) and health care icon Jonson & Johnson (JNJ), among others.
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7 Best Dividend ETFs to Buy Now originally appeared on usnews.com
Update 06/22/23: This story was previously published at an earlier date and has been updated with new information.
