Exchange-traded funds, or ETFs, have had a tremendous impact on the investment landscape since they were first launched in 1993. Investors appreciate the ease of trading that ETFs offer, and the fee structure provides a cost-effective way to gain broad diversification and professional management.
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Regardless of an individual’s investment objective or temperament, there’s an ETF out there for everyone. There are, in fact, more than 3,000 publicly traded ETFs on the market covering all major asset classes and investment styles.
There are equity ETFs that invest in stocks of all sectors and market capitalizations, as well as bond funds that hold fixed-income securities covering government and corporate issuers of every credit rating. Some investors actively trade ETFs for short-term profits. Many invest with an eye toward long-term capital appreciation. Others own ETFs for the dividend income they provide.
Many income investors depend on dividends to supplement their incomes. They include retired people, trust beneficiaries and others on a fixed income. For this class of investors, current income can be a primary objective. Thankfully, there is a whole category of high-dividend ETFs designed to provide a dependable dividend.
High-dividend ETFs shouldn’t be the only type of security a person invests in. Depending on the economy, interest rates, the fund’s strategy and the securities it invests in, dividend-generating ETFs can be just as volatile as any stock or bond fund. It’s always best to have a diversified portfolio with several kinds of securities. That said, once core holdings are in place and an appropriate level of diversification is achieved, it makes sense for income-oriented investors to own good-quality, high-dividend ETFs.
The following list includes seven of the very best high-dividend ETFs available today. They are managed by some of the most respected names in the asset management industry and have an established track record of delivering results for shareholders. If you’re considering adding dividend-generating ETFs to your portfolio, this list is a great place to begin your research:
| Dividend ETF | Expense Ratio | Forward Dividend Yield As Of Feb. 21 close. |
| Invesco Preferred ETF (ticker: PGX) | 0.51% | 6.0% |
| Vanguard High Dividend Yield Index Fund ETF Shares (VYM) | 0.06% | 2.6% |
| ProShares S&P 500 Dividend Aristocrats ETF (NOBL) | 0.35% | 2.0% |
| iShares Core High Dividend ETF (HDV) | 0.08% | 3.6% |
| Alerian MLP ETF (AMLP) | 0.85% | 7.2% |
| Virtus Private Credit ETF (VPC) | 9.7% | 11.0% |
| iShares 20+ Year Treasury Bond Buywrite Strategy ETF (TLTW) | 0.35% | 14.0% |
Invesco Preferred ETF (PGX)
Preferred stock is a unique type of asset. Preferred shares typically don’t confer voting rights, but they do pay dividends that have a senior liquidation preference in the event of default. Preferred stock can be bought and sold like common stock, but also has bond-like characteristics.
PGX tracks the ICE BofAML Core Plus Fixed Rate Preferred Securities Index. The fund has assets of more than $4 billion and invests in U.S. dollar-denominated, fixed-rate preferred stocks. Fixed-rate preferred stocks pay more predictable dividends than their adjustable-rate counterparts but tend to be more sensitive to fluctuations in the interest rate market. When rates are falling this asset is likely to go up, while the opposite is true when rates are rising.
The fund owns some securities that are less than investment-grade. Potential investors should consider PGX an aggressive fund that’s not necessarily suitable for more conservative investors.
Dividend yield: 6%
Vanguard High Dividend Yield Index Fund ETF Shares (VYM)
Dependable dividend income is an important objective of VYM, but it’s not the only thing this fund is trying to achieve. VYM is a large-cap equity fund that, in addition to delivering an above-average yield, can provide significant capital appreciation over the long run.
The fund tracks the performance of the FTSE High Dividend Yield Index. That benchmark is made up of U.S. common stocks that have dividend yields in the top 55% of the market. The exact number of holdings will change as conditions change an stocks enter or are dropped from the index, but generally there are between 420 and 460 names in the portfolio.
VYM is a passively managed fund employing a strict, full-replication approach. This simply means that the fund will hold all the same stocks as its benchmark and in the same proportion.
The fund has net assets of more than $61 billion and boasts a low expense ratio of 0.06%.
Dividend yield: 2.6%
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
The S&P 500 Dividend Aristocrats Index might be the best-known dividend growth benchmark on Wall Street. The index comprises S&P 500 component stocks that have increased annual dividends for a minimum of 25 consecutive years. NOBL is the only ETF that tracks that famous index.
Many of the stocks in the NOBL portfolio are blue-chip companies with names every investor would recognize. All of them have raised their dividends for at least 25 years, but some have increased payouts for 40 years or more.
The dividend growth strategy employed by NOBL has proven to be effective at weathering bear markets and thriving during bull markets. Over the long run, the growing dividends can be an effective hedge against inflation and also build income for the future.
NOBL has net assets of around $12 billion. The expense ratio of the fund is 0.35%.
Dividend yield: 2%
iShares Core High Dividend ETF (HDV)
HDV is a $10 billion index ETF that mirrors the Morningstar Dividend Yield Focus Index. The fund tracks the performance of a basket of good-quality, domestic stocks that pay higher-than-average, sustainable dividend yields. The fund’s underlying index is a popular benchmark for investors looking for reliable dividend cash flow.
This ETF, in accordance with the index, invests in the top 75 high-yield stocks that meet the benchmark’s standards for quality and financial soundness. The fund employs safeguards that screen out dividend traps — meaning companies with good yields but weak fundamentals.
The fund has 75 holdings. Exxon Mobil Corp. (XOM), Johnson & Johnson (JNJ), Chevron Corp. (CVX), Phillip Morris International Inc. (PM) and Procter & Gamble Co. (PG) are the top five holdings. Those five names names represent a little more than 30% of the fund’s assets.
HDV is a low-cost fund with an expense ratio of 0.08%.
Dividend yield: 3.6%
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Alerian MLP ETF (AMLP)
There are only a handful of ETFs focusing on master limited partnerships, or MLPs. AMLP is considered the premier ETF in that unique, high-yielding asset class.
AMPL is a $10 billion fund designed to match the performance of the Alerian MLP Infrastructure Index. The fund invests in MLPs that operate in the midstream segment of the energy industry. The term midstream means companies that do business in the transportation and storage aspects of the oil and gas industries.
The fund is capitalization-weighted with adjustments made for liquidity and public float. This results in larger, more liquid partnerships exercising more influence on the fund’s performance.
MLPs, like real estate investment trusts (REITs) and business development companies (BDCs), are required to distribute a minimum of 90% of taxable income back to shareholders as a regular dividend. That makes these unique securities excellent income-generating vehicles.
Because of the specialized nature of the securities it invests in, AMLP investors can expect a higher cost structure compared to other index funds. This ETF has an expense ratio of 0.85%.
Dividend yield: 7.2%
Virtus Private Credit ETF (VPC)
Virtus Investment Partners is a small, boutique fund company that manages about $187 billion in assets, most of which are sub-advised by its affiliates and partners. VPC is a $62 million BDC fund that mirrors the Indxx Private Credit Index.
BDCs are finance companies that make direct debt and equity investments in growing companies. All BDCs avoid corporate taxation by paying out almost all taxable income to shareholders as dividends. VPC accurately reflects the U.S. publicly traded BDC market.
In addition to BDCs, VPC will invest in closed-end funds that invest in private credit companies. The fund has about 60 holdings, and they are well-diversified among the different types of BDCs. Another interesting aspect of the fund is that it is dividend-weighted instead of cap-weighted. The dividend weighting results in higher-yielding securities having more impact on the fund’s income, resulting in higher yield for shareholders.
This ETF’s high expense ratio of 9.7% isn’t necessarily due to current fund expenses. Most of those expenses are due to acquired fund fees which are not paid from assets but must be reported as part of the overall expense ratio.
Dividend yield: 11%
iShares 20+ Year Treasury Bond Buywrite Strategy ETF (TLTW)
TLTW is the highest-yielding and, in many ways, the most interesting ETF on this list. TLTW is a unique, $1 billion ETF that employs a buy/write options strategy to generate a high, sustainable income for shareholders.
TLTW tracks the CBOE TLT 2% OTM Buy/Write Index. The ETF follows the index by holding shares of the iShares 20+ Treasury Bond ETF (TLT) and selling covered calls against the position. In this way, TLTW earns dividends from TLT and a high premium income from the selling of the call options.
Underlying TLT and thus, to a large extent, TLTW as well, are long-term U.S. Treasury bonds. In that sense, TLTW is a relatively conservative investment. Investors should realize, however, that the fund can be volatile, especially in relation to interest rates.
The expense ratio for the fund is 0.35%.
Dividend yield: 14%
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7 Best High-Dividend ETFs to Buy Now originally appeared on usnews.com
Update 02/24/25: This story was published at an earlier date and has been updated with new information.
