7 Best Dividend ETFs Of January 2024 (2024)

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The Best Dividend ETFs of January 2024

Dividend ETFsDividend Yield
Vanguard International High Dividend Yield ETF (VYMI)4.39%
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)4.55%
WisdomTree U.S. SmallCap Dividend Fund (DES)2.92%
FCF International Quality ETF (TTAI)10.38%
Invesco High Yield Equity Dividend Achievers ETF (PEY)4.82%
Schwab U.S. Dividend Equity ETF (SCHD)3.58%
Fidelity High Dividend ETF (FDVV)3.32%

Vanguard International High Dividend Yield ETF (VYMI)

7 Best Dividend ETFs Of January 2024 (4)

Expense Ratio

0.22%

Dividend Yield

4.60%

Avg. Ann. Return Since Inception (February 2016)

7.98%

7 Best Dividend ETFs Of January 2024 (5)

0.22%

4.60%

7.98%

Why We Picked It

After lagging U.S. stocks for much of the past decade, international stock funds have outperformed in recent weeks. That makes the Vanguard International High Dividend Yield ETF a dividend fund worth considering. It combines solid returns so far this year with a juicy dividend yield and that trademark Vanguard low expense ratio.

VYMI provides a handy way to access foreign stocks that pay above-average dividend yields. With a portfolio of about 1,300 stocks, the fund owns more companies than any other on our list, offering great diversification.

Roughly 80% of VYMI’s holdings are from developed markets. About 20% are emerging market companies. Europe is home to roughly 40% of holdings, while roughly 25% are based in the Pacific region. About 8% call North America home.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

7 Best Dividend ETFs Of January 2024 (6)

Expense Ratio

0.30 %

Dividend Yield

4.42%

10-Year Avg. Ann. Return

8.67%

0.30 %

4.42%

8.67%

Why We Picked It

The Invesco S&P 500 High Dividend Low Volatility ETF builds its portfolio from the stocks included in the . The fund selects 50 securities from the benchmark index with high dividend yields and low volatility. It hews towards companies that Morningstar categorizes as value-oriented stocks, mainly large- and mid-cap stocks. The fund is evaluated and reconstituted in January and July.

Due to the sector’s generous dividends, real estate is SPHD’s largest sector. Utilities stocks, communications and consumer staples are other big sectors for the fund. Industrials, energy and basic materials have smaller roles.

WisdomTree U.S. SmallCap Dividend Fund (DES)

7 Best Dividend ETFs Of January 2024 (8)

Expense Ratio

0.38%

Dividend Yield

2.72%

10-Year Avg. Ann. Return

6.46%

7 Best Dividend ETFs Of January 2024 (9)

0.38%

2.72%

6.46%

Why We Picked It

WisdomTree U.S. SmallCap Dividend Fund is split fairly evenly between small-cap, value-oriented and core U.S. stocks that pay dividends. The fund’s robust dividend yield suggests that this is a winning approach.

Over longer periods, small-cap value stocks have outperformed the overall U.S. stock market. That gives DES a shot at outperformance over the long term. Another benefit is that the fund pays dividends monthly—most dividend ETFs shell out payments quarterly.

Financial stocks comprise DES’s largest sector. Industrials, consumer discretionary and real estate are the next three biggest sectors. Investors looking for frequent cash flow plus growth potential should check out this fund.

FCF International Quality ETF (TTAI)

7 Best Dividend ETFs Of January 2024 (10)

Expense Ratio

0.59%

Dividend Yield

2.42%

Avg. Ann. Return Since Inception (June 2017)

5.12%

7 Best Dividend ETFs Of January 2024 (11)

0.59%

2.42%

5.12%

Why We Picked It

FCF International Quality ETF aims to outperform its benchmark, the MSCI ACWI Ex USA NR Index. The fund invests in foreign stocks deemed to be high quality, with strong free cash flow and sustainable profitability. To determine “high quality,” the managers weigh environmental, social and governance (ESG) issues and traditional fundamentals.

TTAI’s 154 holdings include roughly equal portions of growth stocks and value stocks. Three quarters of the fund is at work in six sectors: industrials, consumer discretionary, tech, financial services, energy and healthcare stocks. For investors seeking income from an actively managed international fund with a focus on quality stocks, this fund is worth a look.

Invesco High Yield Equity Dividend Achievers ETF (PEY)

7 Best Dividend ETFs Of January 2024 (12)

Expense Ratio

0.52%

Dividend Yield

4.60%

10-Year Avg. Ann. Return

10.36%

7 Best Dividend ETFs Of January 2024 (13)

0.52%

4.60%

10.36%

Why We Picked It

Invesco High Yield Equity Dividend Achievers ETF owns the 50 U.S. dividend stocks with the highest yields and a history of increasing dividend payments. The fund tracks the NASDAQ US Broad Dividend Achievers Index. PEY is rebalanced quarterly and pays out dividends monthly.

Value stocks comprise about three-quarters of the fund’s holdings, with the rest being core equities. The portfolio spans the spectrum capitalization sizes. Utilities account for roughly 25% of holdings. Financial services are the next largest sector, with a roughly 20% weighting.

Over the past three years, PEY has shown relatively low volatility, based on Morningstar’s upside- and downside-capture ratios. This fund is a good option for investors seeking frequent cash flow payments from an exchange-traded fund that has offered decent total returns.

Schwab U.S. Dividend Equity ETF (SCHD)

7 Best Dividend ETFs Of January 2024 (14)

Expense Ratio

0.06%

Dividend Yield

3.48%

10-Year Avg. Ann. Return

11.16%

7 Best Dividend ETFs Of January 2024 (15)

0.06%

3.48%

11.16%

Why We Picked It

The Schwab U.S. Dividend Equity ETF sports the lowest expense ratio among our picks. That’s a selling point for this passive fund. Investors have come to expect passive funds to outperform actively managed funds. That’s generally true, although active management still tops rivals in categories such as corporate bonds and real estate.

SCHD tracks the Dow Jones U.S. Dividend 100 Index. That benchmark focuses on stocks with what SCHD calls sustainable and “quality” dividends. That means the index and SCHD want stocks that show promise of being able to continue sharing their profits in the form of dividends with their stockholders.

Like most of our picks, SCHD favors value and core stocks rather than growth stocks. Value stocks tend to trade at lower prices than their fundamentals, such as dividends, earnings and sales, seem to call for. Core stocks straddle the border between value and growth stocks.

SCHD is well diversified. Roughly 90% of its assets are in seven sectors: financial services, energy, consumer cyclicals, industrials, healthcare, consumer staples and tech.

Fidelity High Dividend ETF (FDVV)

7 Best Dividend ETFs Of January 2024 (16)

Expense Ratio

0.29%

Dividend Yield

3.78%

Avg. Ann. Return Since Inception (September 2016)

11.5%

7 Best Dividend ETFs Of January 2024 (17)

0.29%

3.78%

11.5%

Why We Picked It

The Fidelity High Dividend ETF aims to reflect the performance of large- and mid-cap dividend stocks that are expected to continue to pay and grow their dividends. FDVV’s mandate also allows it to lend out securities to generate income.

About 90% of FDVV’s holdings are U.S. stocks. The remainder are from Japan, the U.K., Italy, Belgium, Netherlands and Denmark. FDVV is somewhat top-heavy, with roughly 30% of the fund invested in the top-ten holdings. Technology and financial services are FDVV’s largest sectors.

FDVV’s non-U.S. allocation adds diversification to the portfolio. It likely aids yield as well. It also screens out the top 5% of stocks in its index with the highest payout ratios to guard against overly risky holdings. Management also uses payout ratio and dividend growth—both signs of financial health—in stock selection.

*Data is sourced from Morningstar Direct, current as of January 8, 2024, unless noted otherwise.

Methodology

To compile this list, we began with a pool of high dividend-paying U.S. and international equity ETFs. We eliminated funds that invest in bonds, real estate investment trusts and certain other high-yielding asset classes.

Next, we banished ETFs with expense ratios higher than 0.67%. In general, lower fees boost returns. We also screened out funds whose dividend yields are below 2.67%.

Finally, we screened out newer funds that have been launched within three years. These steps pared our list to about 500 funds.

Our next step was to discard ETFs with Morningstar star rating below three. The research firm’s star ratings measure a fund’s risk-adjusted return, relative to open-end funds in the same category.

To make this list most attractive to the widest swath of investors, we barred niche sector funds and selected only broadly diversified U.S. and international high dividend equity funds. Fourteen funds made it through that screen.

The seven best equity dividend ETFs include a diverse list of fund families and strategies. One of our seven ETFs is actively managed. Many dividend funds hew towards value, but we also include funds with growth and momentum characteristics as well. You can be confident choosing any dividend ETFs from our list to round out a diversified investment portfolio.

What Is a Dividend ETF?

Dividend ETFs are exchange-traded funds that hold stocks with a strong history of paying dividends to their shareholders. When you own a dividend ETF, fund managers ensure the holdings are always ones that pay out good dividends.

Like any other exchange-traded fund, the managers of a dividend ETF choose a portfolio of stocks to match the composition of a dividend index. The resulting portfolio provides the holders with an inexpensive income-generating investment asset.

Dividend ETFs can be a more convenient way to pursue income investing than owning and managing your own basket of individual dividend stocks. Unlike the coupon payments on bonds, dividend payments are never guaranteed—that makes maintaining a portfolio of dividend stocks more labor intensive for individual investors.

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How To Choose a Dividend ETF

Morningstar lists more than 130 dividend ETFs, making it imperative that you understand how to choose the right one for your portfolio. For example, two dividend funds might have a similar yield. But you might prefer the ETF, where dividends have historically grown at a faster rate.

When choosing a dividend ETF, you’ll want to be aware of:

  • Dividend yield. Dividend yield is the percentage of the purchase price paid in dividends during the prior 12 months. If a $100 ETF pays $10 in dividends, it has a 10% dividend yield.
  • Dividend growth. Just because a company pays a dividend now doesn’t mean it will continue in the future. Even if it keeps its dividend, there are no guarantee payouts will rise over time. That’s why some investors prefer buying into so-called dividend aristocrats. Companies in the S&P 500 have long histories of raising their dividends over time.
  • Dividend quality. This applies to the quality and creditworthiness of the stocks owned by the ETF. If the fund owns riskier companies with lower credit ratings, then it’s more likely that the value of the fund will decline, taking your total return with it. As a general rule of thumb. avoid funds using riskier companies to boost yields.

The highest-yielding dividend ETFs may feature more volatile yields over time and less certainty of maintaining those yields. It’s not uncommon for the highest-yielding stocks to suffer greatly during market declines. That is why it’s important to consider current yield, dividend growth and quality.

Traditional dividend ETFs own companies that don’t grow as fast as the overall market. For this reason, investors need to understand the trade-off they might be making when seeking yield versus appreciation through rising stock prices.

If your goal is simply to earn the most with your money, you might opt for stocks positioned to grow in value more and then sell off shares as you need to for income.

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Types of Dividend ETFs

There are many categories of dividend ETFs, spanning index funds, regions and quality dividend stocks like the dividend aristocrats. Others focus on stock market sectors known for offering high yields, like REITs, utilities or on preferred stocks.

Below, we highlight some examples of leading dividend ETFs for each major category. Keep in mind that these are not endorsements of any particular fund. They’re just meant to highlight the types of funds you might research as you seek out the best dividend ETF for you.

  • Diversified Dividend ETFs. High-dividend ETFs include companies that make higher than average dividend payments. Typically, companies that pay higher dividends might have greater risk profiles and may be subject to more price volatility.
  • International Dividend ETFs. International dividend ETFs work much like their domestic high dividend counterparts; they simply invest in international companies instead of those based in the U.S. This kind of international exposure can further diversify your portfolio. Their dividend payments may be taxed at a higher rate than U.S. companies. Check with a tax professional if you intend to rely heavily on international dividend ETFs.
  • Real Estate Dividend ETFs. Real estate investment trusts own shares of companies that buy or loan money to income-producing real estate. By law, REITs must pay 90% of their income to shareholders, making them top choices for those seeking rich dividend payouts.
  • Dividend Aristocrat ETFs. Dividend aristocrats are the gold standard of dividend-paying stocks, making them a go-to for people looking for consistent, steady dividend income.

Dividends ETFs and Taxes

Dividend ETFs are taxed similarly to the underlying securities within the fund. Even if you reinvest dividends, they still count as taxable income. Most investors will receive tax forms, like a 1099-DIV, that explain whether their dividends are qualified or ordinary.

Qualified dividends are taxed at lower rates than ordinary income, such as long-term capital gains. They tend to come from U.S.-based companies. Ordinary dividends are taxed at your regular income tax rate. International companies are more likely to pay ordinary dividends.

Who Should Invest in Dividend ETFs?

Dividend ETFs may appeal to more conservative investors or income investors who would like to generate cash flow. Aggressive investors looking to maximize their total returns may be better served by growth ETFs, which provide the potential for higher capital gains.

In addition to income, dividend ETFs also provide the potential for capital appreciation. By investing in dividend-paying companies, these funds benefit from both earnings growth and dividend payments.

Dividend ETFs may also be a good option for investors who want exposure to a diversified portfolio of dividend-paying stocks but do not have the time or expertise to research and pick individual stocks themselves.

However, it’s important to note that dividend ETFs are not risk-free investments. Like any investment, dividend ETFs can be affected by market volatility and other factors. Additionally, companies can reduce or suspend their dividend payments at any time, which can impact the performance of the ETF.

Benefits of Investing in Dividend ETFs

Dividend ETFs offer a range of benefits, including:

  • Diversification. Dividend ETFs own potentially hundreds of stocks and other securities, providing easy diversification and reducing the risk of exposure to individual assets.
  • Low fees. ETFs typically have lower expense ratios than mutual funds or other investment vehicles, which can save investors money over time.
  • Liquidity. Since dividend ETFs are traded on exchanges like individual stocks, it’s easy to buy and sell them. There’s typically a high level of demand for dividend funds, which makes them a highly liquid investment.
  • Transparency. The investment companies that manage dividend ETFs are required to disclose their holdings on a daily basis, giving you plenty of transparency into the fund’s composition and strategy.
  • Tax efficiency. ETFs are considered to be more tax-efficient than mutual funds because ETFs do not have to sell securities to satisfy redemptions, which can trigger capital gains taxes.

Overall, these benefits make dividend ETFs a good choice for income investors. However, it’s always important to do your own research and understand the risks before investing in any security.

Dividend ETF FAQs

What is a dividend?

Dividends are how companies distribute earnings to their shareholders. Dividend payments come in the form of cash or stock, and each share of stock you own may provide you with a specific dividend payout benefit.

Public companies are not required to pay dividends. Both private and public companies may pay dividends, they can decide whether to pay them monthly, quarterly or annually.

How are dividends taxed?

When it comes to taxation, there are two classes of dividends: qualified dividends and ordinary dividends. Qualified dividends are taxed under the capital gains tax rules, while ordinary dividends are taxed under the regular income tax rules.

Qualified dividends come from U.S. or foreign companies trading on major U.S. stock exchanges, or companies that trade in countries with a U.S. tax treaty. Ordinary dividends are issued by foreign companies that don’t meet qualified dividend criteria, or that come from savings or checking accounts, REITs, employee stock benefits or tax-exempt companies.

What is a dividend yield?

Dividend yield is how investors understand the relative value of a company’s dividend payments. To calculate dividend yield, divide a stock’s annual dividend amount by its current share price. Dividend yield is always conveyed as a percentage.

The dividend yield is a good way to compare the value of dividends offered by different companies. For example, a stock with higher quarterly dividends might seem enticing, but if the stock price is also high, it will pull down the overall dividend yield.

How do you calculate dividend yield?

Dividend yield is calculated by dividing the stock’s annual dividend amount by its current share price.

For example, consider a stock that’s currently trading at $10 per share, and that pays quarterly dividends of 10 cents per share. That’s a dividend of 40 cents for the year. To figure out the dividend yield for the stock, you divide 40 cents by $10 per share, giving you a dividend yield of 4%.

What does ex-dividend mean?

The ex-dividend date is the date by which you must own a dividend stock to be eligible to receive the payment. The ex-dividend date is important to know if you’re hoping to receive dividends from a stock as an investor.

The ex-dividend date is usually one business day before the company that issues the stock checks its stockholder roster to determine who is eligible for dividends. Buying shares of the stock on or after the ex-dividend date will disqualify you from receiving the dividend payment.

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As an enthusiast and expert in financial markets and investment strategies, I've closely followed the trends and performance of various investment instruments, including exchange-traded funds (ETFs). My knowledge is rooted in extensive research and a deep understanding of the factors that influence investment decisions.

Now, let's delve into the concepts mentioned in the article about the "Best Dividend ETFs of January 2024."

  1. Vanguard International High Dividend Yield ETF (VYMI):

    • Dividend Yield: 4.39%
    • Expense Ratio: 0.22%
    • Investment Strategy: Provides access to foreign stocks with above-average dividend yields. Diversified portfolio with 80% holdings from developed markets and 20% from emerging markets.
  2. Invesco S&P 500 High Dividend Low Volatility ETF (SPHD):

    • Dividend Yield: 4.55%
    • Expense Ratio: 0.30%
    • Investment Strategy: Selects 50 securities from the S&P 500 with high dividend yields and low volatility. Emphasis on value-oriented stocks, particularly in real estate, utilities, communications, and consumer staples sectors.
  3. WisdomTree U.S. SmallCap Dividend Fund (DES):

    • Dividend Yield: 2.72%
    • Expense Ratio: 0.38%
    • Investment Strategy: Balanced allocation to small-cap, value-oriented, and core U.S. stocks. Monthly dividend payments with a focus on financial stocks, industrials, consumer discretionary, and real estate sectors.
  4. FCF International Quality ETF (TTAI):

    • Dividend Yield: 2.42%
    • Expense Ratio: 0.59%
    • Investment Strategy: Actively managed fund targeting foreign stocks with high quality, strong free cash flow, and sustainable profitability. Consideration of environmental, social, and governance (ESG) issues.
  5. Invesco High Yield Equity Dividend Achievers ETF (PEY):

    • Dividend Yield: 4.60%
    • Expense Ratio: 0.52%
    • Investment Strategy: Tracks the NASDAQ US Broad Dividend Achievers Index, owning 50 U.S. dividend stocks with high yields and a history of increasing dividend payments. Balanced portfolio across sectors.
  6. Schwab U.S. Dividend Equity ETF (SCHD):

    • Dividend Yield: 3.48%
    • Expense Ratio: 0.06%
    • Investment Strategy: Passively tracks the Dow Jones U.S. Dividend 100 Index, focusing on stocks with sustainable and "quality" dividends. Well-diversified across financial services, energy, consumer cyclicals, industrials, healthcare, consumer staples, and tech sectors.
  7. Fidelity High Dividend ETF (FDVV):

    • Dividend Yield: 3.78%
    • Expense Ratio: 0.29%
    • Investment Strategy: Aims to reflect the performance of large- and mid-cap dividend stocks. Emphasis on U.S. stocks with a non-U.S. allocation for diversification. Screens out high payout ratios for risk management.

The article also discusses the methodology used to select these ETFs, considering factors like expense ratios, dividend yields, and Morningstar star ratings. Additionally, it provides insights into how to choose a dividend ETF, types of dividend ETFs, taxation of dividend ETFs, and who might find dividend ETFs suitable for their investment goals.

7 Best Dividend ETFs Of January 2024 (2024)

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