7 Best Dividend ETFs of June 2024
Written by
Andrew Lisa
Edited by
Melanie Grafil
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Retirees have long flocked to dividend stocks because they generate income without requiring investors to sell any shares — but betting on individual stocks is risky business. The advent of the high-dividend ETF allowed not only retirees, but all investors, to profit from their holdings without putting all their eggs in one basket.
The following is a look at some of the top income-producing ETFs and how you can choose the one that’s right for you.
What Are the 7 Best Dividend ETFs?
Knowing that the best dividend funds aren’t necessarily those with the highest yields, consider the following seven income-generating ETFs, which pay solid yields while also displaying healthy fundamentals, like holdings, expenses and assets under management:
- SPDR S&P 500 ETF Trust
- ProShares S&P 500 Dividend Aristocrats ETF
- GraniteShares HIPS US High Income ETF
- Vanguard High Dividend Yield ETF
- Vanguard FTSE Emerging Markets ETF
- Vanguard Real Estate ETF
- iShares iBoxx $ High Yield Corporate Bond ETF
1. SPDR S&P 500 ETF Trust
Formed in 1993, SPDR S&P 500 ETF Trust (SPY) is the oldest ETF in the United States — and perhaps the most stable. It generally displays the highest asset under management rankings and the most significant trading volume.
SPY tracks the S&P 500, the stock market’s benchmark index that represents 500 of the largest corporations in America.
| Data | |
|---|---|
| Ticker | SPY |
| Dividend Yield | 1.28% |
| Top Holdings | Microsoft, Apple, Nvidia, Amazon, Alphabet |
| Expense Ratio | 0.09% |
| AUM | $533.35 billion |
2. ProShares S&P 500 Dividend Aristocrats ETF
NOBL plucks the cream of the crop from the S&P 500 — the so-called Dividend Aristocrats, a handful of companies that have raised their dividends every year for at least 25 years straight. There are currently only 67. Only the world’s most stable, profitable and resilient companies can consistently grow their dividends for a quarter century through changing market conditions. Most of these aristocrats have done it for 40 years or more.
| Data | |
|---|---|
| Ticker | NOBL |
| Dividend Yield | 2.07% |
| Top Holdings | 3M, Dover, Exxon Mobil, NextEra Energy, Hormel Foods |
| Expense Ratio | 0.35% |
| AUM | $11.82 billion |
3. GraniteShares HIPS US High Income ETF
GraniteShares HIPS US High Income ETF (HIPS) bills itself as “historically one of the highest-yielding ETFs in the U.S. market.” With a yield in the double digits, it’s certainly up there — but the trade-off is a painfully high expense ratio. It provides exposure to four alternative high-income categories: BDCs, MLPs, closed-end funds and REITs.
| Data | |
|---|---|
| Ticker | HIPS |
| Dividend Yield | 10.14% |
| Top Holdings | NuStar Energy L.P.; Western Midstream Partners, LP; Plains All American Pipeline, L.P.; Blackstone Secured Lending Fund; Energy Transfer LP |
| Expense Ratio | 1.99% |
| AUM | $73.79 million |
4. Vanguard High Dividend Yield ETF
VYM offers exposure to domestic dividend stocks from a variety of industries by tracking the FTSE High Dividend Yield Index, which includes more than 400 securities. It emphasizes the financial, healthcare and consumer staples segments.
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| Data | |
|---|---|
| Ticker | VYM |
| Dividend Yield | 2.85% |
| Top Holdings | Broadcom, JPMorgan Chase & Co., Exxon Mobil, The Procter & Gamble, Johnson & Johnson |
| Expense Ratio | 0.08% |
| AUM | $65.26 billion |
5. Vanguard FTSE Emerging Markets ETF
This high-dividend ETF focuses on stocks from emerging markets like China, Brazil, South Africa and Taiwan. Its yield is impressive and its expense ratio is dirt cheap, but tread lightly. Emerging market funds like this one have high growth potential but also high risk. VWO is designed for long-term investors who can tolerate a greater level of volatility.
| Data | |
|---|---|
| Ticker | VWO |
| Dividend Yield | 3.38% |
| Top Holdings | Taiwan Semiconductor Manufacturing, Tencent Holdings, Alibaba Group Holding, Reliance Industries, HDFC Bank |
| Expense Ratio | 0.08% |
| AUM | $105.76 billion |
6. Vanguard Real Estate ETF
VNQ is a sector-specific ETF that invests in domestic stocks issued by REITs. The fund attempts to track the MSCI US Investable Market Real Estate 25/50 Index. While it has some growth potential, the fund’s primary objective is to generate income. The expense ratio is quite low compared to the average for similar funds.
| Data | |
|---|---|
| Ticker | VNQ |
| Dividend Yield | 4.15% |
| Top Holdings | Vanguard Real Estate II Index, Prologis, American Tower, Equinix, Welltower |
| Expense Ratio | 0.13% |
| AUM | $61.42 billion |
7. iShares iBoxx $ High Yield Corporate Bond ETF
The iShares iBoxx $ High Yield Corporate Bond ETF is a fixed-income fund that attempts to track the results of the Markit iBoxx USD Liquid High Yield Index, an index of high-yield corporate bonds. Its 30-day SEC yield is the second-highest on this list, but the fees are much lower than the ETF that ranks first by yield.
| Data | |
|---|---|
| Ticker | HYG |
| Dividend Yield | 5.95% |
| Top Holdings | CCO Holdings, TransDigm, CHS/Community Health Systems, CSC Holdings, Tenet Healthcare |
| Expense Ratio | 0.49% |
| AUM | $16.73 billion |
What To Consider When Evaluating an ETF’s Dividend Yield
Although it seems counterintuitive, the ETF with the highest dividend yield is not always the best dividend ETF. Outsized yields often prove unsustainable over time and can fall with the price of the stock when market conditions change.
Businesses in distress sometimes offer supersized dividends to lure fresh investors, even if it means paying out more than they’re bringing in. On the other hand, a lower payout ratio that’s slow and steady can be an excellent indicator that an organization is healthy and stable.
What To Consider Before Investing In a Dividend ETF
Dividend investing is attractive because it offers the chance to harvest profits from stocks without selling any shares. Investors flock to exchange-traded funds for the diversity they provide and their simplicity and ease of use. Dividend ETFs offer the best of both worlds, but they are not a magic wealth-generation machine.
Before you choose an ETF, it’s a good idea to:
- Set financial goals.
- Research dividend funds, stock markets and macroeconomic factors.
- Determine the right asset mix.
- Review all current investments.
Once strategy prep is done, it’s time to look for the right ETF. Some of the main aspects to keep in mind include:
- ETF fees: Knowing the ETF’s expense ratio helps you figure out which funds yield the best returns.
- Overall yield: This is a solid indicator of the type of income you can expect from your ETFs, even when dividends aren’t guaranteed over time.
- Asset liquidity: If an ETF has less asset availability, it could become a challenge to sell it when the time comes.
Remember that all investment types could lead to losses. That’s why you must evaluate which funds invest in riskier assets and which stay on the safer side. Although dividend yield is a great tool to pick the best dividend-paying stocks, it’s not all there is to dividend investing. You should also evaluate share prices to avoid getting involved with struggling companies.
How To Invest in Dividend ETFs
You can invest in dividend ETFs in the same way that you can buy dividend stocks. As their name implies, ETFs trade on an exchange and can actually seem indistinguishable from individual stocks to the novice investor. But with a single purchase, investors own the entire ETF portfolio, not just a single stock.
You’ll need an account with a brokerage firm before you can buy ETFs. But if you don’t have one yet, they’re easy to set up and can often be opened online. Just provide basic personal and financial information, such as your name, address, Social Security number and date of birth, along with your banking information so you can fund your account, and you’ll be set.
Once you have an account open, simply pick the ETF you want to buy and the amount you want to spend. Either tell your broker or enter the trade yourself on your account website and the trade will execute immediately.
Are Dividend ETFs Worth It?
High-dividend ETFs are an excellent choice for veteran and beginner investors alike, depending on their short- and long-term financial goals. Dividend ETFs offer shareholders a passive income stream that can increase over time as shares appreciate.
Keep in mind that there’s no rule saying you must choose only one ETF. A blend of funds can further diversify your holdings and let you fine-tune your investing strategy to match your goals. If you don’t like the format of an exchange-traded fund, you can also investigate traditional dividend mutual funds as an investment option.
FAQ
Here are some of the most commonly asked questions about dividend ETFs.- What Vanguard ETF pays the highest dividend?
- According to Vanguard's website, the ETF that pays the highest dividend is the Emerging Markets Government Bond ETF (VWOB). Its current distribution yield is 5.74%, and its SEC 30-day yield is 6.75%.
- What ETFs pay a monthly dividend?
- If you're looking for a consistent income from your investments, the following ETFs do payouts on a monthly schedule: SPDR S&P 500 ETF Trust, ProShares S&P 500 Dividend Aristocrats ETF, GraniteShares HIPS US High Income ETF, Vanguard High Dividend Yield ETF and Vanguard FTSE Emerging Markets ETF, among others.
- Are dividend ETFs worth it?
- Dividends can be a good way for investors to build wealth over time -- unlike other investment types, dividends generate passive income. This is a perfect investment for retirees and others looking to receive passive income.
- As always, whether an investment is right for you depends on what you want from your investments and what your financial goals are.
- Are high-dividend ETFs taxed?
- High-dividend ETF payments receive a similar treatment to income and must be reported on your 1099 statement. Profits from selling ETFs are taxed like the underlying stocks or bonds inside them.
- How are dividends taxed?
- According to the IRS, there are two types of dividends, and they can be taxed in one of two ways. Ordinary dividends are taxed as ordinary income, the same as your paycheck. Qualified dividends, which have certain restrictions such as having been paid by a U.S. or qualified foreign corporation and that investors must hold for at least 60 days, are taxed at long-term capital gains rates. This rate can be 0%, 15% or 20% and is usually lower than a taxpayer's ordinary income rate. You should check with your ETF provider to determine the types of dividends it pays. These will also be outlined in the year-end tax reports the fund sends to investors.
John Csiszar, Daria Uhlig and Daniela Rivera-Herrera contributed to the reporting for this article.
Data is accurate as of June 19, 2024, and is subject to change.
Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.
