One of the most powerful ways to grow your investments is to not overthink things and be patient with your portfolio. That long-term approach gets even more powerful when your investments are generating steady income via dividends, too.
Dividends aren’t just for retirees looking for income. For young investors, dividends give you more capital to invest and grow your nest egg — and over many years, the difference can be impressive. According to research from the Hartford Funds, returns for the S&P 500 increased sixfold from 1960 through 2020 if dividends delivered by this key stock market index were reinvested.
[Sign up for stock news with our Invested newsletter.]
Whether you’re near retirement looking for income or just getting started and looking to the distant future, dividend ETFs have a lot to offer. The following seven funds all offer different ways to invest with a dividend strategy in mind:
| ETF | Assets under management | Dividend yield |
| Vanguard Dividend Appreciation ETF (ticker: VIG) | $71 billion | 1.9% |
| Schwab US Dividend Equity ETF (SCHD) | $51 billion | 3.6% |
| Vanguard High Dividend Yield Index ETF (VYM) | $49 billion | 3.3% |
| ProShares S&P 500 Aristocrats (NOBL) | $10.9 billion | 2.3% |
| Global X SuperDividend ETF (SDIV) | $770 million | 11% |
| Vanguard Real Estate ETF (VNQ) | $31 billion | 3.9% |
| iShares International Select Dividend ETF (IDV) | $4.4 billion | 6.8% |
Vanguard Dividend Appreciation ETF (VIG)
This Vanguard Dividend ETF is the largest fund of its kind by assets and is a popular choice among investors due to a simple and low-cost approach. More than 300 top dividend stocks make up the portfolio, led by tech giants Microsoft Corp. (MSFT), insurance titan UnitedHealth Group Inc. (UNH) and megabank JPMorgan Chase & Co. (JPM). However, while these are all well-established dividend payers, there’s not a whole lot of yield offered by the group. Instead, VIG focuses on companies with sustainable payouts that can appreciate steadily over time. That means you may not get a huge payday now, but these dividend stalwarts should increase distributions regularly.
Assets under management (AUM): $71 billion Expense ratio: 0.06%, or $6 per year on every $10,000 invested Dividend yield: 1.9%
Schwab US Dividend Equity ETF (SCHD)
Equally affordable but offering nearly double the yield, this top dividend ETF from Schwab is the No. 2 dividend fund by assets and another great option for “set it and forget it” portfolios. The list is more focused, with only about 100 stocks, but SCHD cuts out the miserly dividend payers among the biggest U.S. companies to boost payouts. For instance, rather than MSFT, which yields less than 1% right now, the top tech holding is chipmaker Broadcom Inc. (AVGO), yielding nearly 2%. If you already have exposure to large-cap growth stocks in other parts of your portfolio, SCHD is a good fit to serve a complementary desire for low-risk dividend stocks.
AUM: $51 billion Expense ratio: 0.06% Dividend yield: 3.6%
Vanguard High Dividend Yield Index ETF (VYM)
Rounding out the list of large asset leaders among dividend ETFs, the Vanguard High Dividend Yield Index ETF is another good option. VYM offers the broadest set of holdings on this list, with an expanded portfolio of about 450 stocks. It focuses on companies with a history of paying higher-than-average yields, too, which means it offers a pretty good payout. Top holdings include chipmaker Broadcom, Big Oil firm Exxon Mobil Corp. (XOM) and JPMorgan Chase.
AUM: $49 billion Expense ratio: 0.06% Dividend yield: 3.3%
[See: 7 Best ETFs to Buy Now.]
ProShares S&P 500 Aristocrats (NOBL)
This ETF focuses on the S&P 500 Dividend Aristocrats
— an elite group of stocks that have increased their payouts for at least 25 consecutive years. That’s a heck of a long time on Wall Street, and inclusion on that list is proof of strong management and stability across many ups and downs in the global economy. As we’ve seen with other dividend ETFs that mostly focus on growth instead of current yield, NOBL doesn’t offer a particularly large payday. But component stocks including Procter & Gamble Co. (PG) and NAPA automotive parts provider Genuine Parts Co. (GPC) have seen more than 60 years of dividend increases each, proving a long-term commitment to shareholders that is unmatched on Wall Street.
AUM: $10.9 billion Expense ratio: 0.35% Dividend yield: 2.3%
Global X SuperDividend ETF (SDIV)
As the name implies, SDIV prioritizes yield above all other considerations, generating a current payout that’s actually more than twice the current yield on most bonds these days. That said, this Global X fund does so by taking on significantly greater risks as it overlooks the common large-cap stocks in favor of big paydays in smaller stocks as well as foreign companies. About 36% of its portfolio is in U.S. companies right now, with about 10% apiece in Brazil and Australia. Furthermore, the ETF is heavily weighted toward finance and real estate, with about 44% of assets in these two sectors. SDIV is good for aggressive investors who want high income, but keep in mind that the big yield may not offset significant declines in share price.
AUM: $770 million Expense ratio: 0.58% Dividend yield: 11%
Vanguard Real Estate ETF (VNQ)
As shown by the prior fund’s focus on real estate, this sector is another way to get higher yield than via a diversified approach across all corners of the market. This Vanguard dividend ETF is focused solely on real estate investment trusts, or REITs, that own all sorts of property — from office buildings and apartments to hotels and hospitals. Currently, top holdings include industrial property and warehouse owner Prologis Inc. (PLD), telecom infrastructure company American Tower Corp. (AMT) and data center operator Equinix Inc. (EQIX). REITs are required to pay out at least 90% of their profits to shareholders, so this sector tends to be one of the highest-yielding sectors on Wall Street. Just keep in mind that putting all your money into this single sector makes you more exposed to any volatility from unique trends in this corner of the market that may be less meaningful to an investor with a fully diversified portfolio.
AUM: $31 billion Expense ratio: 0.12% Dividend yield: 3.9%
iShares International Select Dividend ETF (IDV)
If you are looking to go the other way and truly diversify your portfolio, international companies that pay generous dividends can be a good complement to the typical portfolio. That’s because if you have a core holding like an S&P 500 index fund of top U.S. companies, a fund like IDV provides a boost to income without duplicating any positions. This dividend ETF’s 100-stock portfolio includes the world’s largest and most established firms that pay dividends, including mega-miner Rio Tinto PLC (RIO), Italian energy giant Eni and consumer staples name British American Tobacco PLC (BTI). The U.K. represents 15% of the portfolio, followed by Canada and Australia at 10% each. These are not volatile, no-name companies from emerging markets but rather established income players similar to U.S. blue-chip stocks — and thus this ETF offers a powerful way to increase your dividend potential beyond the usual domestic suspects.
AUM: $4.4 billion Expense ratio: 0.51% Dividend yield: 6.8%
More from U.S. News
10 Long-Term Investing Strategies Advisors Love
9 of the Best Bond ETFs to Buy Now
Artificial Intelligence Stocks: The 10 Best AI Companies
7 Best Dividend ETFs to Buy Now originally appeared on usnews.com
Update 12/19/23: This story was previously published at an earlier date and has been updated with new information.
