You don’t have to put in much work picking stocks to receive cash flow from your money. Putting your capital into income exchange-traded funds, or ETFs, allows you to benefit from steady cash distributions and long-term appreciation.
Income ETFs deliver yields while fund managers stay on top of the holdings for you. It’s as close to zero-effort passive income as you can get. Once you put money in a fund, it works on autopilot, but you’ll need to assess its performance and your investment strategy on a regular basis to determine if an income ETF still belongs in your portfolio.
[Sign up for stock news with our Invested newsletter.]
These funds are more popular among people who are approaching retirement and prefer financial security over risky assets.
What Is an Income ETF?
An income ETF is a publicly traded fund that holds income-producing assets, such as dividend stocks and bonds. Some income ETFs exclusively hold one or the other, while other funds hold a mix of dividend stocks and bonds. All of these funds aim to deliver high distributions to their investors with capital appreciation as a nice bonus.
Andy Wang, managing partner at Runnymede Capital Management, highlights the advantages income ETFs have over growth-oriented funds: “Income ETFs are attractive to investors who prioritize stability and cash flow over the pursuit of market-beating returns. Those looking for reliable income streams, especially as they approach retirement and aim to cover living expenses, often find low-fee, cash-flow-producing income ETFs a strategic choice.”
You don’t have to use income funds to boost cash flow. Some investors prefer to comb through hundreds of dividend stocks, bonds and other income-producing assets to construct a portfolio. However, you can have a fund manager make all of those decisions for you while achieving similar returns.
When reviewing an income ETF, an investor should consider a fund’s historical performance, expense ratio, yield, distribution schedule and management. Each of these factors can help you make a better decision.
For instance, a high-yield ETF may look attractive, but poor historical returns and a high expense ratio can make it a bad choice. The more you learn about a fund, the more context you have before allocating your capital across assets. “By examining these elements collectively, investors can make more informed decisions, aligning their investment choices with their financial goals and risk tolerance,” Wang says.
Overall, investors have a wide variety of high-quality income ETFs to choose from. These are some of the very best:
| Income ETF | Expense Ratio | 30-Day SEC Yield |
| Schwab U.S. Dividend Equity ETF (ticker: SCHD) | 0.06% | 3.9% |
| SPDR S&P Dividend ETF (SDY) | 0.35% | 2.6% |
| Vanguard High Dividend Yield ETF (VYM) | 0.06% | 2.7% |
| WisdomTree U.S. Quality Dividend Growth Fund (DGRW) | 0.28% | 1.7% |
| ProShares S&P 500 Dividend Aristocrats ETF (NOBL) | 0.35% | 2.2%* |
| Vanguard Dividend Appreciation ETF (VIG) | 0.05% | 1.8% |
| First Trust Morningstar Dividend Leaders Index Fund (FDL) | 0.45% | 4.5% |
*Trailing yield as of May 21.
Schwab U.S. Dividend Equity ETF (SCHD)
The Schwab U.S. Dividend Equity ETF is a fan favorite in dividend investing Reddit communities, and it’s easy to see why. This fund mirrors the Dow Jones U.S. Dividend 100 Index and has generated an annualized 10.4% return over the past decade as of May 21. The fund embodies consistency while offering a 3.9% 30-day SEC yield and a generous 0.06% expense ratio.
The “gold standard for dividend funds,” according to Morningstar, SCHD consists of large-cap companies that value investors would appreciate. The fund’s two holdings are Verizon Communications Inc. (VZ), and Coca-Cola Co. (KO), renowned dividend payers. The top 10 holdings make up 41% of the fund’s total assets.
Energy, consumer staples and health care are the top three sectors for the fund. Tech makes up a little more than 10% of the fund’s total assets, but most of the tech stocks are mature companies. Investors don’t have to worry as much about sharp volatility with this fund, and historical returns have been solid.
SPDR S&P Dividend ETF (SDY)
The SPDR S&P Dividend ETF pours its $20 billion in total assets into industrials, consumer staples and utilities. Those three sectors make up approximately half of SDY’s total assets. The ETF also has a 0.35% expense ratio.
SDY prioritizes dividend stocks that have increased their payouts for at least 20 consecutive years. It’s part of the fund’s stated goal to mirror the S&P High Yield Dividend Aristocrats Index.
SDY has a 2.6% 30-day SEC yield and spreads its capital across 149 equity holdings. The top two positions are Verizon and Realty Income Corp. (O). It pools only 17% of total assets into its top 10 positions, so it is less top-heavy than many ETFs.
SDY has delivered an annualized 11.1% return over the past 15 years as of May 21. Those returns have been heating up lately based on an annualized 12.1% return over the past five years.
Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF focuses on large-cap value stocks and has a 0.06% expense ratio. It’s no surprise to see the Vanguard fund with a low expense ratio; many of the brokerage firm’s funds have low fees.
Furthermore, the $70 billion fund has a 2.7% SEC yield and has delivered an annualized 14.2% return for the past five years. Data from Morningstar indicates that investors who put $10,000 in VYM back in 2015 would have seen their investment soar to about $26,000.
VYM gives investors exposure to 587 stocks as a part of its effort to use the FTSE High Dividend Yield Index as its benchmark. Its top two positions are Broadcom Inc. (AVGO) and JPMorgan Chase & Co. (JPM). These two stocks make up 9% of total assets, but then again, the fund’s top 10 holdings only make up 25% of assets.
Gerard C. O’Reilly is the principal portfolio manager for VYM, and he has advised the fund since 2016. O’Reilly has deep experience in managing Vanguard stock index portfolios going back to 1994.
WisdomTree U.S. Quality Dividend Growth Fund (DGRW)
WisdomTree U.S. Quality Dividend Growth Fund is a top-performing, $15 billion income ETF with a 15.4% annualized return over the past five years as of May 21.
That top-shelf return also comes with a 1.7% 30-day SEC yield, and the fund’s top holdings suggest that more gains may be on the way. The Magnificent Seven are well represented in the top holdings, poised to benefit from long-term artificial intelligence tailwinds.
Tech is a big theme for DGRW, as almost a quarter of its assets go into the sector. Industrials and consumer staples are the next top sectors in the fund. DGRW has a reasonable 0.28% expense ratio for its attractive mix of price appreciation and dividend payouts.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
The ProShares S&P 500 Dividend Aristocrats ETF exclusively focuses on “Dividend Aristocrats,” stable dividend stocks that have raised their payouts for at least 25 consecutive years. These stocks tend to have solid financials and fundamentals. The fund has a 0.35% expense ratio and a 2.2% trailing dividend yield.
Investors get exposure to 70 companies, with the consumer staples sector having the most representation, at 22% of assets; the industrials sector has the next-highest allocation. NOBL has $11.4 billion in assets under management and has delivered an annualized return of 11.6% over the past five years.
Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation ETF has performed well compared to other income ETFs, and is very popular as a result. The $101.8 billion fund has a 13.6% annualized return over the past five years as of May 21, with a 12.3% annualized return over 15 years.
The ETF pays a modest 1.8% 30-day SEC yield and uses the S&P U.S. Dividend Growers Index as its benchmark. VIG prioritizes large-cap stocks that have a record of consistently raising their dividends. The fund spreads its assets across 338 equity holdings, with the top stocks at the moment being Broadcom and Microsoft Corp. (MSFT).
VIG leans toward the information technology sector, which represents almost a quarter of the fund’s assets. The next-highest allocations are in financial services, health care and consumer staples.
VIG also has an ultra-low expense ratio of 0.05%, contributing to its impressive long-term returns. Walter Nejman and O’Reilly have led the fund since 2016.
First Trust Morningstar Dividend Leaders Index Fund (FDL)
The First Trust Morningstar Dividend Leaders Index Fund has 95 stock holdings, with Verizon and Chevron Corp. (CVX) in top positions. These stocks make up about 16% of the fund’s total assets.
FDL primarily spreads its $5.4 billion in assets across health care, financial services and consumer staples stocks. Those three sectors make up more than half of the fund’s total positions. FDL offers a 4.5% 30-day SEC yield with a 0.45% expense ratio.
The fund has an annualized return of 15.7% over the past five years, a “wow” factor for any fund. Adding to its credibility, the average tenure of the fund’s seven managers is 15 years.
More from U.S. News
9 of the Best Bond ETFs to Buy for 2025
7 Best Cryptocurrency ETFs to Buy
7 Best Income ETFs to Buy in 2025 originally appeared on usnews.com
Update 05/22/25: This story was published at an earlier date and has been updated with new information.
