Best Dividend ETFs for 2024
Dividends are important for some investors, who seek the income stream they can potentially generate from their capital. This article explains what exactly dividends and dividend ETFs are, as well as the advantages and disadvantages of investing in them.
Table of Contents
Key Takeaways
- Some companies pay dividends to shareholders as a reward for holding shares.
- Dividend ETFs are funds that trade on stock exchanges that have a particular focus on companies that pay out dividends.
- Choosing dividend ETFs with a stable dividend payment history offers investors a chance to increase their portfolio revenue.
- Dividend-paying companies have less money to reinvest to grow their business and therefore tend to see slightly less share price appreciation.
What are Dividend ETFs?
Dividend ETFs are Exchange-Traded Funds (ETFs) with a focus on companies that provide dividend yields. An ETF can be seen as a combination of stocks that trade as a single share. The fund issuer invests the money that investors pour into the fund directly into the underlying companies. This way, investors can gain exposure to a broad range of different equities without needing to include them all separately in their portfolios.
Some companies pay out dividends. A dividend is a direct reward to shareholders in the form of cash. When a company wants to start paying dividends to its investors, it first establishes a certain amount per share. For example, Coca-Cola pays out roughly 46 dollar cents of dividend every quarter, with a share price of around $56. This works out to around $2 of dividends per share per year, which constitutes a yield of around 3% ($2 of dividends per share / $56 share price). Note: Dividend yields change every day as the share price changes.
Companies may want to pay out dividends to increase the value of their shares in the eyes of investors. A dividend, as opposed to share appreciation, is usually seen as a way to generate extra return on invested capital. It should be noted, however, that companies can change the amount of dividend they pay out at any time, or even stop paying out dividends altogether. Therefore, there are no guarantees.
Best Dividend ETFs to Watch
This list of dividend ETFs covers four funds that together constitute a good basis for the research an investor might want to perform when looking to add dividend ETFs to their portfolio. Whatever makes for the best dividend ETF UK is subjective and depends on each investor’s personal circumstances.
- Vanguard High Dividend Yield ETF - Dividend ETF that Tracks the FTSE High Dividend Yield Index
- SPDR S&P UK Dividend Aristocrats ETF - Tracks the Top 40 UK Companies with High Dividend Yield
- SPDR Global Dividend Aristocrats ETF - Tracks the S&P Global Dividend Aristocrats Quality Income Index
- iShares Euro Dividend ETF - Issued by the World’s Largest Asset Manager, BlackRock
Vanguard High Dividend Yield ETF
The Vanguard High Dividend Yield ETF (VYM) is issued by Vanguard, one of the world’s leading financial asset managers. Vanguard is one of the pioneers of index investing and issues many passively managed ETFs and funds. This fund tracks the FTSE High Dividend Yield Index, which is an index composed of companies with a relatively high dividend yield. This ETF is passively managed.
The top 10 holdings of this fund by weight are Exxon Mobil Corp (~3.6%), JPMorgan Chase & Co. (~3.2%), Johnson & Johnson (~2.9%), Procter & Gamble Co. (~2.6%), Broadcom Inc. (~2.6%), Home Depot Inc. (~2.4%), Chevron Corp. (~2.3%), AbbVie Inc. (~2%), Merck & Co. Inc. (~2%), PepsiCo Inc. (~1.8%).
The top economic sectors covered by this fund are Financials (~20%), Consumer Staples (~13%), Healthcare (~12%), Industrials (~12%), and Energy (~12%). The rest of the fund’s capital is spread over a number of other sectors, including Discretionary Consumer Goods and Technology. With Admirals, you trade the Vanguard High Dividend Yield ETF CFD. CFDs, or contracts for difference, are derivative contracts that track the underlying price of an asset. This enables investors to trade long and short using leverage. Learn more in The CFD Trading Guide.
The SPDR S&P UK Dividend Aristocrats ETF (UKDV) tracks the 40 UK companies with the highest dividend yield which are included in the S&P Europe Broad Market Index and have in the past 7 consecutive years maintained or increased their dividend yield. The term ‘dividend aristocrat’ is often used within the financial world to refer to companies with a stable or increasing dividend yield for a number of consecutive years. The exact number of years needed to qualify tends to differ depending on the source.
The top 10 holdings of this UK dividend ETF fund by size of capital allocation are Intermediate Capital Group PLC (~5.4%), Legal & General Group PLC (~5.3%), Primary Health Properties PLC (~5.3%), IG Group Holdings PLC (~5.2%), British American Tobacco PLC (~5%), National Grid PLC (~4.8%), Hargreaves Lansdown PLC (~4.5%), Schroders PLC (~4.2%), Unilever PLC (~3.9%), and Big Yellow Group PLC (~3.8%).
The main economic sectors covered by this fund are Financials (~26%), Industrials (~19%), Non-Durable Consumer Goods (~14%), and Real Estate (~12%). The rest of the fund’s capital is allocated to a number of other sectors like Healthcare and Utilities.
SPDR Global Dividend Aristocrats ETF
The SPDR Global Dividend Aristocrats ETF (GLDV.UK) was created to track the S&P Global Dividend Aristocrats Quality Income Index. It is composed of companies within the S&P Global BMI that provide high dividend yields and have maintained or increased their dividend yield for the past 10 consecutive years. At the same time, to qualify, these companies need to have a positive cash flow from business operations.
The largest companies held by this fund based on their weighting are Adecco Group AG (~2.8%), Seagate Technology Holdings PLC (~2.7%), A2A S.p.A (~2.7%), Verizon Communications Inc. (~2.5%), Lenovo Group Limited (~2.4%), Digital Reality Trust Inc (~2.4%), HNI Corporation (~2.4%), LyondellBasell Industries NV (~2.4%), Universal Corp. (~2.4%), LTC Properties (~2.3%).
The top economic sectors represented in this fund are Financials (~25%), Real Estate (~15%), Industrials (~15%), and Information Technology (~8%). The rest of the fund’s capital covers a number of other sectors like Utilities (~8%), and Materials (~7%).
iShares Euro Dividend ETF
The iShares Euro Dividend ETF (IDVY) is issued by BlackRock, the world’s largest financial asset manager. The fund is composed of 30 European companies with high dividend yields.
The top 10 holdings of this fund by weight are Endesa SA (~5.5%), Credit Agricole SA (~5.1%), NN Group NV (~4.5%), Orange SA (~4.4%), Poste Italiane (~3.9%), ASR Nederland NV (~3.9%), Assicurazioni Generali (~3.8%), Ageas SA (~3.8%), SNAM (~3.7%), and OMV AG (~3.6%).
The economic sectors this fund has invested its capital into are mainly Financials (~42%), Utilities (~11%), and Luxury Consumer Goods (~10%). Other sectors include Industrials (~7%), Communications (~6%), and Real Estate (~6%).
How to Invest in Dividend ETFs
With Admirals, you can invest in dividend ETFs from the Invest.MT5 account and with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission.
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission.
- France/Germany stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission.
You can learn more about investing commissions on the Admirals Contract Specification page. You can search for global stocks and ETFs from the MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Pros & Cons of Investing in Dividend ETFs
By investing in dividend ETFs, investors may be able to use the regular dividend payouts to generate a stream of income from their portfolio. By selecting companies that have a long history of stable dividend payments, investors may be able to generate revenue from their investments, even when the share price is depreciating.
Dividend ETFs that focus on companies that have proven to continue paying dividends even during economic turmoil can be included in a portfolio to reduce volatility. Not only do the dividend payments continue to generate income, but the share price of the dividend-paying companies tends to be less volatile and susceptible to sharp downturns than non-dividend-paying counterparts.
As a downside, dividend ETFs tend to show less share price appreciation than non-dividend-paying counterparts. This is because companies pay out dividends to their shareholders, instead of investing that money into growing their business operations (this is why tech companies usually pay very low dividends, if any). Usually, companies that pay out dividends are already sufficiently large and stable.
Continue Reading:
- Best S&P 500 ETF
- Best Bank ETF
- Best Energy ETF
- Best Vanguard ETFs
- Best Emerging Market Fund ETF
- What Are ETFs? ETFs Explained
- How to Trade ETFs with €1000
- The CFD Trading Guide
FAQs on Best Dividend ETFs
What is a high dividend ETF?
The S&P 500 companies typically offer dividends ranging from 2% to 5%, though some companies provide higher yields up to 9%. And while a 15% dividend yield may seem appealing, investors should nevertheless exercise caution and conduct thorough research as companies with such high yields may struggle to sustain them over time.
What is the best dividend ETF?
There are many dividend ETFs available, primarily focusing on U.S. or European companies, with larger, established firms generally being capable of consistent dividend payments. Dividend ETF examples include Vanguard High Dividend Yield ETF and SPDR Global Dividend Aristocrats ETF. Investors should, however, perform their own independent research to choose the preferred region, index, and desired yield when making investment decisions in dividend ETFs.
What is a dividend ETF?
A dividend ETF is a fund that can be bought as a single share through a stock broker. The fund will hold shares of numerous dividend paying companies. Dividend payments are paid out to shareholders, to share in the profits of the company.
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