High dividend stocks can give your portfolio an enticing combination of income and growth.
If withdrawn, dividend payments can sustain passive income needs, which may appeal to retirees. Those same dividend payments can snowball to compound long-term investment returns if reinvested.
For our selection of the best high-dividend ETFs in 2024, we screened multiple options based on factors like management style, expense ratios, dividend yields and total assets. Importantly, we set a minimum 12-month yield of 2.5% to ensure these ETFs deliver on their promise of higher-than-average dividend yields.
Best high-dividend ETFs
- Vanguard High Dividend Yield ETF (VYM).
- iShares Core High Dividend ETF (HDV).
- Schwab U.S. Dividend Equity ETF (SCHD).
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- Vanguard International High Dividend Yield ETF (VYMI).
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Vanguard High Dividend Yield ETF (VYM)
Expense ratio
0.06%
Total assets
$52.6 billion
What you should know
Vanguard High Dividend Yield ETF (VYM) offers dividend investors a straightforward, affordable and accessible way of accessing U.S.-listed high-yield dividend stocks. As a passive ETF, VYM tracks the FTSE High Dividend Yield Index, which screens its holdings for higher-than-average forecasted dividend yields. The ETF holds over 450 stocks and has a large-cap value style tilt overall.
Pros and cons
Pros
- Low expense ratio.
- Decent 12-month yield.
- High in total assets and a long track record since 2006.
Cons
- Higher turnover rate than Vanguard S&P 500 ETF (VOO).
- Higher weight to financial sector stocks.
- Lower technology sector representation compared to VOO.
More details
5-year annualized rate as of March 1: 10.93%.
Dividend schedule: Quarterly.
Schwab U.S. Dividend Equity ETF (SCHD)
Expense ratio
0.06%
Total assets
$53.8 billion
What you should know
Schwab U.S. Dividend Equity ETF (SCHD) is a rather unique dividend ETF, thanks to its underlying index, the Dow Jones U.S. Dividend 100 Index. The index screens stocks based on their indicated annual yield. It also implements screeners that check for free cash flow to total debt, return on equity, five-year dividend growth rate and a minimum of 10 consecutive years of dividend payments. This helps ensure a focus on dividend growth and quality in addition to higher dividends.
Pros and cons
Pros
- Low expense ratio.
- Index screens for dividend growth and quality in addition to yield.
- Decent 12-month yield.
Cons
- A smaller portfolio of just over 100 stocks.
- High portfolio turnover rate.
- Excludes real estate sector stocks and significantly underweights utilities.
More details
5-year annualized rate as of March 1: 13.99%.
Dividend schedule: Quarterly.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
Expense ratio
0.07%
Total assets
$6.7 billion
What you should know
SPDR Portfolio S&P 500 High Dividend ETF (SPYD) takes the well-known S&P 500 Index a step further by applying a dividend twist. Its index, the S&P 500 High Dividend Index, is designed to capture the performance of the top 80 highest-yielding stocks within the broader S&P 500 index. Currently, this results in being highly overweight in financial sector stocks and real estate sector stocks. As part of SPDR’s portfolio ETF lineup, SPYD is designed to keep fees low and serve as a core building block.
Pros and cons
Pros
- Low expense ratio.
- A high 12-month yield.
- Benefits from broader S&P 500 index criteria.
Cons
- High concentration of financial sector stocks.
- High concentration of real estate sector stocks.
- Smaller portfolio of just 80 stocks.
More details
5-year annualized rate as of March 1: 7.91%.
Dividend schedule: Quarterly.
Vanguard International High Dividend Yield ETF (VYMI)
Expense ratio
0.22%
Total assets
$7.2 billion
What you should know
High dividend stocks aren’t just found in the U.S. market. Investors can also diversify internationally, potentially providing higher yields and the ability to hedge against the U.S. market stagnating. A possible ETF for this role is Vanguard International High Dividend Yield ETF (VYMI), which tracks the FTSE All-World Ex-US High Dividend Yield Index. This ETF holds international stocks forecast to pay above-average dividend yields and currently has over 1,300 holdings from countries like Japan, the U.K., Australia, Canada, Germany, France, Switzerland and China.
Pros and cons
Pros
- High 12-month yield.
- Large portfolio of over 1,300 stocks.
- Provides international diversification.
Cons
- A higher expense ratio.
- Has historically underperformed VYM.
- Subject to volatility from fluctuating exchange rates.
More details
5-year annualized rate as of March 1: 8.04%.
Dividend schedule: Quarterly.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
Expense ratio
0.30%
Total assets
$2.8 billion
What you should know
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) combines a high dividend screener with a low volatility screener in an attempt to deliver defensive income potential. This ETF tracks the S&P 500 Low Volatility High Dividend Index, which selects 50 S&P 500 stocks that have historically paid a combination of higher-than-average dividends and displayed lower-than-average volatility. The ETF is rebalanced and reconstituted semiannually in January and July to drop and add stocks as needed.
Pros and cons
Pros
- High 12-month yield.
- Provides a low volatility screen.
- Monthly dividend payment schedule.
Cons
- A small portfolio of just 50 stocks.
- Higher expense ratio.
- ESG investors may not like exposure to tobacco stocks, often dubbed “sin stocks.”
More details
Five-year annualized rate as of March 1: 6.64%.
Dividend schedule: Monthly.
Compare the best high-dividend ETFs
| FUND | DIVIDEND PAYMENT SCHEDULE | TOTAL ASSETS | EXPENSE RATIO |
|---|---|---|---|
Vanguard High Dividend Yield ETF (VYM) | Quarterly | $52.6 billion | 0.06% |
iShares Core High Dividend ETF (HDV) | Quarterly | $10.1 billion | 0.08% |
Schwab U.S. Dividend Equity ETF (SCHD) | Quarterly | $53.8 billion | 0.06% |
SPDR Portfolio S&P 500 High Dividend ETF (SPYD) | Quarterly | $6.7 billion | 0.07% |
Vanguard International High Dividend Yield ETF (VYMI) | Quarterly | $7.2 billion | 0.22% |
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) Low Volatility ETF (SPHD) | Monthly | $2.8 billion | 0.30% |
Methodology
Our curated rankings of the top high-dividend ETFs were created by applying a screen of several “must-have” metrics:
- Total assets: All high-dividend ETFs on this list have accrued at least $1 billion in total assets.
- 12-month dividend yield: To be eligible for inclusion on this list, a high-dividend ETF must pay a 12-month dividend yield of 2.5% or higher.
- Expense ratios: No high dividend ETF on this list may charge a net expense ratio higher than 0.3%.
- Management style: All high dividend ETFs on this list must track an index and not be actively managed.
- Strategy: We excluded ETFs that did not derive all of their yields solely from dividend payments, such as derivative income funds.
An experienced ETF analyst selected the ETFs above, but they may not be right for your portfolio. Before purchasing any of these ETFs, research your options thoroughly to ensure they align with your financial goals and risk tolerance, and consider consulting a financial professional for guidance around these decisions.
Why other funds didn’t make the cut
We began our rankings by excluding actively managed dividend ETFs, which helped keep fund complexity low and minimize expense ratios. We believe that sticking to low-cost, index-based ETFs is typically a better strategy for most investors, given that the overwhelming majority of actively managed funds tend to underperform index benchmarks over the long term.
Our rationale for this decision was based on the results of the latest SPIVA (S&P Indices Versus Active) Scorecard from S&P Dow Jones Indices. This semi-annual survey measures the performance of actively managed funds worldwide against their respective index benchmarks.
According to SPIVA, as of Dec. 31, 2022, 93.4% of all U.S. large-cap funds underperformed the S&P 500 index over a trailing 15-year period.
While actively managed dividend ETFs can have their uses for higher-than-average income, hedging, or possible outperformance, the SPIVA results continue to indicate the benefits of passive indexing over active management in the long term.
Moreover, our rankings of high-dividend ETFs screened out funds that employed derivatives such as covered calls or put-selling to produce higher levels of income. While this approach can lead to greater yields, it is not technically a “high dividend” approach, but rather a “derivative income” strategy.
We also eliminated high dividend ETFs that did not pay a 12-month yield of at least 2.5%, did not accrue at least $1 billion in total assets, and charged expense ratios higher than 0.3%. This helped us find high-dividend ETFs that provided an above-average yield, were well established and not at risk of closing down, and cost-effective for the average investor.
Final verdict
High-dividend ETFs can help investors achieve a balanced blend of income potential and long-term capital appreciation. They can also be a great way of augmenting an investment portfolio that is heavy in growth stock representation.
Our pick for the best high-dividend ETF goes to the Schwab U.S. Dividend ETF (SCHD). This ETF currently possesses an attractive 12-month dividend yield, while sporting a low expense ratio. Its index also screens for numerous quality metrics, such as a 10-year minimum of sustained dividend payments, free cash flow to total debt, five-year dividend growth rate and return on equity. Historically, it has also provided a competitive total return.
What is a high-dividend ETF?
A high-dividend ETF is an investment fund designed to invest in a collection of stocks that have been specifically chosen because they tend to pay higher dividends compared to other stocks.
In simpler terms, a high-dividend ETF is like a basket where you hold a portfolio of stocks, and most of these stocks are picked because they regularly give back a higher-than-average amount of money to their investors in the form of dividends. By investing in this type of ETF, you are hoping to benefit from these consistent payouts.
How to invest in high dividends
When considering an investment in high-dividend stocks or ETFs, it’s crucial to understand how to identify which ones are genuinely offering substantial dividend payouts. One way to do this is by screening for high dividends, which can be done via three main metrics.
Firstly, there’s the 30-day SEC yield. This measure provides a snapshot of the income generated per share by a fund over the past 30 days, annualized and then expressed as a percentage of the fund’s maximum offering price per share on the last day of the period. It’s a standardized metric that takes into account the most recent month’s income, making it useful for comparing the potential income of different funds.
Then, we have the 12-month trailing yield. This represents the dividends paid by the stock or ETF over the past year, relative to its current price. Essentially, it shows what an investor would have earned in dividends over the last year, expressed as a percentage of the current share price. Remember, this can fluctuate as time goes on.
Lastly, the forward dividend yield is another metric to consider. This is based on the expected distributions (like dividends) over the next year, expressed as a percentage of the current price. It gives an investor a sense of what they might expect to earn in dividends in the upcoming year based on current projections.
For those who might feel overwhelmed by these metrics, the good news is that there are numerous online screeners available that provide these data points. By using these screeners, investors can easily identify high-dividend ETFs and stocks that meet their investment criteria.
Frequently asked questions (FAQs)
Whether dividend ETFs are a good long-term investment largely depends on your unique financial situation, including your investment goals, how long you plan to keep your money invested and your comfort level with market ups and downs.
In general, dividend ETFs might be an attractive choice for those who are okay with the typical risks of stocks. These investors are often drawn to the promise of getting a higher-than-average income, especially from dividends that might be qualified and therefore potentially tax-efficient. This means that the dividends could be taxed at a lower rate than ordinary income, which can be an added benefit for many investors.
On the other hand, if you’re someone who gets anxious with market swings or if you’re trying to avoid any significant dips in your investments, then dividend ETFs might not be the best fit. They could be less appropriate for investors who prioritize minimizing market volatility or potential losses.
Additionally, if you’re keen on investing in fast-growing companies that often reinvest most of their profits back into their business, it’s essential to know that these companies typically pay little to no dividends. And for that reason, they won’t appear in these types of ETFs. So, if growth stocks are your focus, dividend ETFs might not align with your strategy.
When seeking ETFs that pay the highest dividends, it’s common to come across funds with descriptors like “high dividend”, “yield”, “super dividend” or similar terms in their name, index, or investment strategy. These labels often indicate the ETF’s focus on stocks that historically pay substantial dividends.
But it’s essential to remember that names alone don’t tell the full story. To genuinely understand the potential yield and the sustainability of these dividends, one should delve into the three aforementioned metrics – the 30-day SEC yield, the 12-month trailing yield, and the forward distribution yield. Moreover, closely reading the ETF’s prospectus can provide clarity on its strategy, holdings, and potential risks.
That said, it’s worth noting that simply chasing the highest dividends possible can be a flawed approach when it comes to picking ETFs. High dividend yields can sometimes be a sign of underlying problems with an ETF. This is where the concept of “yield traps” comes into play.
A yield trap occurs when an ETF has an attractive and high dividend yield, but the reason for this high yield is a significant drop in price in its underlying holdings, often due to significant and concerning challenges. In such cases, the high yield might not be sustainable.
Moreover, ETFs with exceptionally high dividends may hold stocks that are facing headwinds, which could lead to reduced profitability. These challenges could, in turn, result in the company deciding to reduce or eliminate its dividend payout to preserve cash. As a result, investors might face a double hit, with both the value of their ETF and the expected dividend income decreasing.
Finally, some of these ETFs may not hold solely dividend-paying stocks. Their distribution payments may also consist of income from derivatives, such as an options-selling strategy with covered calls or cash-secured puts. While possessing a high yield, these ETFs are not true high-dividend ETFs, and investors should be cautious when buying them.
Therefore, while dividends can be a valuable component of an investment strategy, it’s crucial to consider the broader financial health and prospects of the stocks in each ETF in question rather than focusing solely on the dividend yield.
