Last Updated on February 27, 2024 by Amrita
Dividend-paying ETFs are an attractive option that can provide both capital growth and dividend income. There’s no shortage of options when it comes to picking the best dividend-paying ETF, so finding one that fits your goals can be a difficult task. I have researched for you and identified the 10 best dividend-paying ETFs for long term that offer outstanding value to maximize their returns. Check out our top 10 picks and find out how these funds can help you achieve financial freedom.
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What Is Dividend-Paying ETF?
A dividend-paying exchange-traded fund (ETF) is a type of investment vehicle that allows you to invest in stocks or other securities that pay out regular dividends. Dividend ETFs attempt to match the composition of a dividend index, giving investors an efficient way to build up their income portfolio.
By pooling funds and allowing professional managers to select stocks, individual investors can enjoy an ongoing income stream without the hassle of managing a portfolio of individual dividend stocks. This makes dividend ETFs a great way to access high-yield investments with minimal effort.
Furthermore, dividends are often a safer bet than coupon payments from bonds, since they can be adjusted or cut when needed by the company. With dividend ETFs, investors get access to diversified portfolios that have the potential to generate steady income.
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What Are The Benefits Of Dividend Paying ETF?
For investors who are looking for an easy way to generate a steady income stream, dividend-paying ETFs can be an attractive option. These funds track stocks or bonds that pay out regular dividends, often on a quarterly basis.
As such, they provide investors with an opportunity to receive a reliable income from their investments while also benefiting from the potential capital gains of owning stocks or bonds.
- One of the primary advantages of investing in dividend-paying ETFs is that they offer a convenient way to diversify your portfolio. By taking advantage of the different types of stocks and bonds contained within the fund, you can spread your money across multiple asset classes while not having to purchase each one separately. This allows you to benefit from greater diversification than you would if you invested in individual stocks or bonds.
- Another benefit of dividend-paying ETFs is that they often offer a higher yield than other investments. Because the fund is composed of multiple stocks and bonds, each with its own dividend, it can provide investors with a much higher payout than an individual stock alone. This helps to offset any losses incurred from market volatility.
- Furthermore, dividend-paying ETFs are generally low maintenance investments because they don’t require the same close monitoring as individual stocks and bonds. By choosing a fund that tracks a broad index such as the S&P 500 or Dow Jones Industrial Average, you can rest assured that your portfolio is being well managed without having to pay for active management or research services.
- Finally, dividend-paying ETFs can be a great tool for investors looking to achieve long-term capital appreciation. In addition to the income generated from dividends, investors are able to benefit from potential capital gains as the underlying stocks and bonds appreciate over time. This allows you to build wealth while also enjoying a steady stream of income.
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The 10 Best Dividend ETFs For The Long Term
1. Vanguard Dividend Appreciation ETF (VIG)
One of the safest dividends ETF is Vanguard Dividend Appreciation ETF (VIG) which seeks to track the performance of a broad, diversified index of companies that have a history of increasing dividends.
The fund invests in a portfolio of large- and mid-capitalization stocks across multiple sectors, with a focus on companies that are leaders in their respective industries. VIG is one of the largest and most popular dividend ETFs, with over $70 billion in assets under management.
The Vanguard Dividend Appreciation ETF has a relatively low expense ratio of 0.06% which is significantly lower than the average expense ratio for dividend ETFs. The fund’s distribution yield is 1.99% and the portfolio has a beta of 0.85, which is relatively low for a dividend ETF.
Vanguard Dividend Appreciation ETF has a solid track record of performance, outperforming the S&P 500 Index in 9 out of the past 10 years.
The fund’s 5-year annualized return is 11.5%. Investors looking for a diversified, low-cost dividend ETF that has a history of outperforming the market should consider Vanguard Dividend Appreciation ETF.
Features:
- Dividend yield: 1.8 percent
- Expense ratio: 0.06 percent
- 10-Year Avg. Annual Return: 11.24%
- Assets under management: Over $70 billion
2. Vanguard International High Dividend Yield ETF (VYMI)
VYMI’s broad-based portfolio of international dividend stocks provides investors with exposure to a diverse range of industries, countries and companies.
The ETF offers an attractive yield and low expense ratio relative to many other international dividend funds. Investors should note that the fund has significant country weightings in Europe, the Pacific region and North America.
VYMI is well diversified with 1,300+ stocks in almost all countries of the world. The ETF’s holdings are weighted toward developed markets (80%), but there is a significant exposure to emerging markets (20%) as well.
With its combination of high yield and low cost, Vanguard International High Dividend Yield ETF is an attractive option for investors looking for international dividend income.
Features:
- Dividend yield: 4.47 percent
- Expense ratio: 0.22 percent
- 5-Year Avg. Annual Return: 3.58%
- Assets under management: Over $6 billion
3. iShares Core High Dividend ETF (HDV)
The iShares Core High Dividend ETF (HDV) is also available with a strong track record and low expense ratio and has been around since 2006 and tracks the Morningstar US Dividend Yield Focus Index.
This index consists of 100 high-dividend paying stocks that are selected based on several factors including dividend yield, payout ratio, and 5-year average dividend growth.
While HDV’s top holdings are large cap stocks such as AT&T, ExxonMobil, and General Electric, the fund also offers exposure to small- and mid-cap stocks. Overall, HDV is a well-rounded dividend ETF with a diversified portfolio of high-quality dividend payers.
Features:
- Dividend yield: 4.05 percent
- Expense ratio: 0.08 percent
- 10 Year Avg. Annual Return: 8.10%
- Assets under management: Over $10 billion
4. SPDR S&P Dividend ETF (SDY)
The SPDR S&P Dividend ETF (SDY) provides a diversified portfolio of high-quality dividend-paying stocks. The fund tracks the S&P High Yield Dividend Aristocrats Index, which consists of companies that have raised their dividends for at least 20 years.
SDY’s holdings are well diversified across sectors, with the largest weightings in industrials, consumer staples, and healthcare.
The fund has a low expense ratio of 0.35%, and its current dividend yield is 2.66%. Investors looking for a diversified way to invest in high-yielding dividend stocks should consider the SPDR S&P Dividend ETF.
Features:
- Dividend yield: 2.7 percent
- 10-Year Avg. Annual Return: 10.04%
- Expense ratio: 0.35 percent
- Assets under management: Over $22 billion
5. The iShares Core Dividend Growth ETF (DGRO)
The fund tracks the FTSE US Dividend Growers Index, which consists of companies that have consistently increased their dividends for consecutive years. It has a low expense ratio of 0.08%, and its dividend yield is currently 2.12%.
The companies 5 years total return is 11.30%. One of the best aspects of DGROA is that it offers low-cost exposure to US stocks with a focus on dividend growth.
When you research them you will see that they have a history of sustainable dividend growth and are widely diversified.
Features:
- Dividend yield: 2.12 percent
- 5-Year Avg. Annual Return: 11.30%
- Expense ratio: 0.08 percent
- Assets under management: Over $24 billion
6. iShares Select Dividend ETF (DVY)
iShares Select Dividend ETF is an exchange-traded fund launched and managed by iShares, Inc. The fund invests in the public equity markets of the United States. It seeks to invest in stocks of companies that have a history of paying dividends.
To construct its portfolio the iShares Select Dividend ETF employs fundamental analysis along with a bottom-up stock selection approach.
It benchmarks the performance of its portfolio against the Dow Jones U.S. Select Dividend Index (DJUSDL). The fund was formerly known as iShares Dow Jones Select Dividend Index Fund.
Features:
- Dividend yield: 4.1 percent
- 5-Year Avg. Annual Return: 9.55%
- Expense ratio: 0.38 percent
- Assets under management: Over $20 billion
7. ProShares S&P 500 Aristocrats ETF
The ProShares S&P 500 Aristocrats ETF holds some of the biggest and most well-known companies in the world that have increased their dividends for 25 consecutive years or more.
While this kind of stability comes with a bit of a higher price tag, it’s worth it for investors who want to sleep well at night knowing their dividends are safe and sound.
One thing to keep in mind with this ETF is that it is very US-centric, so if you’re looking for international diversification this may not be the best choice.
Additionally, because this fund only invests in companies that have increased their dividends for 25 years or more, it is missing out on some of the faster-growing companies in the market.
Features:
- Dividend yield: 1.9 percent
- Avg. Annual Return: 11.76%
- Expense ratio: 0.35 percent
- Assets under management: Over $12 billion
8. Schwab US Dividend Equity ETF (SCHD)
The Schwab US Dividend Equity ETF (SCHD) is one of the best dividends ETF for long term goals that seek to track the total return of the Dow Jones U.S. Dividend 100 Index.
The index is comprised of companies that have a history of paying dividends and are committed to growing their dividend payments over time
SCHD is one of the largest and most liquid dividend ETFs on the market, with over $13 billion in assets under management. The fund has a low expense ratio of just 0.060%. Investors in SCHD can expect to receive a healthy yield of 3.64%. The fund is well-diversified, with holdings in a variety of sectors.
Overall, the Schwab US Dividend Equity ETF is a great choice for investors looking for exposure to a basket of high-quality, dividend-paying stocks. The fund offers diversification, low costs, and a solid yield, making it one of the best ETFs available for income-seeking investors.
Features:
- Dividend yield: 3.64 percent
- 10 Yrs Avg. Annual Return: 11.67%
- Expense ratio: 0.06 percent
- Assets under management: Over $50 billion
9. WisdomTree US Equity Income ETF (EUDG)
The fund focuses on companies with a history of paying dividends and those that are likely to continue doing so. It is one of the best dividend ETFs because it has a low expense ratio and has outperformed its benchmark index, the Russell 1000 Value Index, over the past five years.
The WisdomTree US Equity Income ETF is a good choice for investors who are looking for exposure to dividend-paying stocks.
The fund provides diversified exposure to large-, mid-, and small-cap stocks, and its portfolio is well-positioned to benefit from continued economic growth in the United States.
If you’re looking for a dividend ETF with a strong track record of performance and low expenses, the WisdomTree US Equity Income ETF is a good choice.
Features:
- Dividend yield: 3.08 percent
- 3 Yrs Avg. Annual Return: 9.17%
- Expense ratio: 0.45 percent
- Assets under management: Over $68 billion
Website Link: https://www.wisdomtree.eu/en-gb/etfs/currency-hedged/wisdomtree-us-equity-income-ucits-etf-eur-hedged-acc
10. Invesco International Dividend Achievers Portfolio (PID)
PID seeks to track the investment results of an international index composed of companies that have increased their regular cash dividends for five consecutive years.
It offers investors exposure to a diversified portfolio of some of the world’s leading dividend-paying companies, including many blue chip names.
PID is a good choice for long-term investors who are looking for exposure to international dividend-paying companies. The fund has a low expense ratio and has achieved strong returns over the long term.
However, investors should be aware that the fund may be more volatile than other ETFs due to its international focus.
Features:
- Dividend yield: 3.31 percent
- Expense ratio: 0.53 percent
- Assets under management: Over $ 1 billion
Website Link: https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=PID
How Do Dividends Work?
When a company pays part of its profits to its shareholders (like incentives, bonuses, etc.), it is called a dividend. The amount of dividend that is distributed is usually determined by the board of directors and can be expressed in terms of a percentage of the total earnings or as a set dollar amount for each share.
Dividend payments are typically made on a quarterly basis, but may also occur on an annual or semi-annual basis as well. When a company decides to pay dividends, it means that the company has enough money to make those payments without going into debt or selling assets.
The dividend is paid out of the company’s profits and is considered an incentive for shareholders because it provides them with returns even when the stock price remains static. Generally, companies that have a track record of paying dividends tend to have more loyal shareholders.
Dividends can be paid in cash or stock, depending on the company’s policy. Companies that issue stocks as dividends are known as dividend reinvestment plans (DRIPs). When investors purchase shares through DRIPs, the additional shares from the dividend are added to their existing holdings.
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What Are The Different Types Of Dividend Paying ETF For Long Term?
There are many different types of this fund available to investors, each with its own unique benefits and drawbacks. Here is a brief overview of some of the most popular types of dividend ETFs:
- REIT ETFs: These ETFs invest in real estate investment trusts (REITs), which are required by law to pay out at least 90% of their taxable income as dividends. This makes REIT ETFs an attractive option for income-seeking investors, as they tend to offer high dividend yields. However, REIT ETFs can be volatile and sensitive to interest rate changes, so they may not be suitable for all investors.
- Dividend Aristocrat ETFs: These ETFs track the performance of the S&P 500 Dividend Aristocrats Index, which includes companies that have increased their dividends for 25 consecutive years or more. Dividend Aristocrat ETFs tend to be less volatile than the overall stock market and offer a higher yield, making them a good choice for income-seeking investors.
- International Dividend ETFs: These ETFs invest in dividend-paying stocks from around the world, providing exposure to a diversified group of companies. International dividend ETFs can be a good way to diversify your portfolio and reduce your overall risk. However, they may be subject to currency risk if the U.S. dollar weakens against foreign currencies.
- Diversified Dividend ETFs: These ETFs invest in a variety of different dividend-paying stocks, including REITs, utility companies, and financial firms. Diversified dividend ETFs offer exposure to a wide range of companies and can be a good way to diversify your portfolio. However, they may be more volatile than some other types of dividend ETFs.
How Do You Choose The Best Dividend ETF For Your Portfolio?
When it comes to building a successful portfolio, choosing the right dividend ETF is essential. There are many different types of dividend ETFs available, and each one has its own unique features and benefits that can help you achieve your financial goals.
- One of the most important factors to consider when selecting a dividend ETF is the type of investment that it offers. Some dividend ETFs focus on companies that pay out regular dividends, while others may offer exposure to stocks with high yields or potential for capital appreciation. You should also consider the fees associated with investing in a dividend ETF and whether you will need to pay taxes on any distributions received.
- When choosing a dividend ETF, it is also important to review its past performance and track record. You should compare the performance of your chosen ETF to other ETFs in its category and find out how it has fared over time. Additionally, you should look into any potential risks associated with investing in a dividend ETF, such as whether it is subject to tracking error or other market volatility.
- Finally, make sure that you consider the size of the dividend ETF and whether or not it is an appropriate fit for your portfolio. You should also ensure that you understand the conditions associated with investing in a dividend ETF, such as any redemption fees or minimum holding periods. Making sure that you understand each of these factors can help you get the most out of your investment.
What Is An ETF?
An exchange-traded fund (ETF) is a type of investment fund that tracks an index or a basket of stocks. ETFs are traded intraday on stock exchanges, like any other security, and can be bought and sold throughout the day – as opposed to traditional mutual funds which are only priced once per day after markets close. As such, with ETFs there is no minimum investment, and investors can gain access to a diversified portfolio of stocks with far less capital.
What Types Of ETFs Pay Out Dividends?
One popular type of exchange-traded fund (ETF) that pays out dividends is a dividend ETF. These funds typically invest in stocks or bonds with high dividend yields and provide investors with both capital appreciation as well as regular income from dividend payments.
Dividend ETFs also provide diversification and the potential for higher returns than what can be achieved through a single stock purchase. Other types of ETFs that pay dividends include equity, sector-specific, REIT (Real Estate Investment Trust), bond, and international funds. Each type has unique characteristics when it comes to dividend yields and risk levels, so it is important to do your research before investing.
Additionally, you may also consider ETFs that use leverage to generate additional income on top of the dividends paid out. Leveraged ETFs are typically more volatile and carry greater risk than traditional ETFs, so they should not be attempted without a thorough understanding of their structure and potential rewards.
Tax Implications: Best Dividend ETF For Long Term
It’s important to consider the tax implications when investing in dividend ETFs as well. For example, investors need to be aware that dividends are subject to taxation, which means they will have to pay taxes on the dividends they receive from ETFs.
When considering tax implications, investors should consider talking to a financial advisor and ensure that their investments are structured in the best way for them.
Additionally, investors may be able to take advantage of special provisions with certain types of dividend ETFs which allow for pre-tax contributions and withdrawals.
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Tips To Getting Started With Dividend Paying ETF
There are a few things to keep in mind when buying a dividend ETF, such as the expense ratio, yield, and distribution schedule. You’ll also want to make sure that the ETF is well diversified so that you’re not overly exposed to any one company or sector.
When it comes to finding the best fund for your portfolio, there are a few key factors to consider.
- The first is yield, which is the percentage of the fund’s NAV that is paid out in dividends each year.
- The second is the expense ratio, which is the amount you’ll pay in fees and expenses annually.
- The third factor is the distribution schedule, which refers to how often the fund pays out dividends.
If you’re looking for the highest paying dividend ETF, then you’ll want to focus on funds with a high yield. However, it’s important to keep in mind that these funds may also have a higher expense ratio.
For example, the iShares Core High Dividend ETF (HDV) has an expense ratio of 0.08%, which is relatively low, but its yield is only 3.35%.
If you’re looking for a safe dividend ETF, then you’ll want to focus on funds with a lower yield and a lower expense ratio. For example, the Vanguard Dividend Appreciation ETF (VIG) has a yield of 1.99% and an expense ratio of only 0.06%.
When it comes to distribution schedules, there are two main options: monthly or quarterly. Quarterly dividend ETFs tend to have higher yields, but they also require you to wait longer for your dividends. Monthly dividend ETFs don’t have as high of a yield, but you’ll receive your dividends more frequently.
What Are The Risks Associated With Investing In Dividend Paying ETFs?
Investing in dividend paying ETFs can be a great way to diversify your portfolio and also provide you with a steady income. But, as with any investment, there are some risks associated with investing in dividend paying ETFs.
Some of the most common risks include:
- Volatility: Dividend paying ETFs may experience higher levels of volatility than other investments. This means that the value of your investment may go up and down more quickly, resulting in both gains and losses in a short period of time.
- Interest Rate Risk: The performance of dividend paying ETFs is closely tied to changes in interest rates, which can affect the value of your portfolio. If interest rates rise, your dividends may be worth less and you could experience losses.
- Tax Risk: When investing in dividend paying ETFs, you should consider the tax implications of your investments. Depending on the type of income you receive from dividends, different tax rates may apply.
- Credit Risk: Dividend paying ETFs can carry a certain amount of credit risk due to the fact that the companies in which you’re investing may default on their debt.
- Liquidity Risk: Investing in dividend paying ETFs can be less liquid than other investments, meaning that it may take longer to convert your investment into cash.
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The Bottom Line
The best dividend paying ETF is the one that provides the highest return with the least amount of risk. For investors looking for income and stability, the best dividend ETF offers a reliable stream of payments while also providing the potential for capital appreciation. However, while there are many different options available for you, these 10(Above listed) funds offer the best combination of yield, diversification, and low expense ratios.
