Exchange-traded funds (ETFs) have become a popular way for amateur and professional investors alike to indirectly invest in stocks or other assets. ETFs are less risky than individual shares, have lower expense ratios than many managed mutual funds, and can be bought and sold via a stockbroker in the same way that you would buy and sell shares.
An ETF is a basket of securities such as stocks, bonds, or commodities. Unlike managed mutual funds, ETFs typically track an index, for example by simply including all the stocks in the FTSE 100 index.
We have prepared a list of the best ETFs you can buy in 2021, but it’s a specific subset of available ETFs: those that include the best dividend-paying companies.
Where Can I Trade Dividend ETFs?
Brokers act as intermediaries between you and the financial exchanges.
Traditional stockbrokers will allow you to invest an amount of money in an ETF, e.g. $1,000.
Some trading platforms offer leveraged trades in the form of spread bets or contracts-for-difference (CFDs) which are riskier because your losses, as well as your gains, will be multiplied— so be careful! These brokers will typically ask you to stake an amount of money per pound or dollar to win or lose when the ETF’s price moves up or down.
What is a Dividend ETF?
A dividend ETF includes the stocks of longstanding, steady companies that return a share of their profits to shareholders by paying dividends. The included companies could be in the oil, basic materials, healthcare, pharmaceutical, bank, or financial sectors.
Dividend ETFs will pay their investors — that’s you if you buy one — a regular dividend income on a quarterly or even monthly basis.
According to Investopedia, "the dividend ETF universe consists of about 96 funds, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM)."
Invest in Dividend ETFs in 3 Steps
Open a Trading Account
A trading account can be opened with an online broker in a matter of minutes, although some may take longer if your identity needs to be established. Funding your account can typically be done by debit card, bank transfer (takes longer), or sometimes PayPal.
Choose Dividend ETFs
Your broker will list the ETFs that are available for you to invest in, and you should be able to search the list for the names of the ETFs we give you here. You can usually click each one for more information and a price chart.
Place Your Trade
Once you’ve found the ETF(s) you want to invest in, you should simply be able to press the “buy” button to make your investment with the amount of money you wish to commit. Some trading platforms (as distinct from conventional stockbrokers) might ask you to invest on a pounds-per-point or dollars-per-point basis as a spread bet or CFD trade.
Best Dividend ETFs to Buy Now
Here is our list of the best ETFs to trade in 2021 followed by our rationales for including them.
- SDEM - Global X MSCI SuperDividend Emerging Markets ETF
- VYM - Vanguard High Dividend Yield
- DIV - Global X SuperDividend U.S. ETF
- SDIV - Global X SuperDividend ETF
- DVYE - iShares Emerging Markets Dividend ETF
- SPHQ - Invesco S&P 500 Quality ETF
- VIG - Vanguard Dividend Appreciation ETF
- HDV - iShares Core High Dividend
- SDY - SPDR S&P Dividend
- SCHD - Schwab U.S. Dividend Equity ETF
1. SDEM - Global X MSCI SuperDividend Emerging Markets ETF
SDEM has been around since March 2015 with $24.48 million worth of managed assets. The emerging markets in this ETF include Hong Kong, South Africa, Brazil, and India. The 50 holdings come from the financials, energy, and utility sectors.
2. VYM - Vanguard High Dividend Yield ETF
VYM includes only US companies that make high dividend payments. The ETF was created in 2006 and (at the time of writing) has an average weighted market cap of $140.60 billion. Its top three sectors are financials, consumer non-cyclical, and healthcare.
3. DIV - Global X SuperDividend U.S. ETF
Created in 2013, DIV tracks 50 US high dividend securities. Its top holdings include B&G Foods Inc., Kraft Heinz, General Mills, and other large cap companies with low volatility. This ETF has 42 holdings and an average market cap of $32.69 billion at the time of writing.
4. SDIV - Global X SuperDividend ETF
This dividend ETF has a total of 102 holdings and its top three sectors are financials, basic materials, and energy. SDIV started in 2011 and, according to etf.com, it "tracks an equal rated weighted index of 100 global securities with high yields."
5. DVYE - iShares Emerging Markets Dividend ETF
Another emerging markets dividend ETF is DVYE. This open-ended fund has been around since 2012 and it offers an average spread of 0.12%. With 95 holdings, its average market cap is $14.12 billion. Its top 10 countries include Hong Kong, the Russian Federation, Brazil, South Africa, Thailand, and others.
Expert Tip on Investing in Dividend ETFs“ A recurring topic in the trading industry is the ability to handle your emotions when trading. Since you can trade ETFs like stocks during market hours, breaking news may change the direction of the price. Keep calm and use your knowledge to maximize your profit. ”- Mauricio Carillo
Why Trade ETFs?
ETFs have become popular because they are more diversified (hence less risky) than investing in shares but — unlike mutual funds — they can be bought and sold exactly like shares during market trading hours.
Since ETFs typically track stock indices rather than being actively managed, commissions have less of an impact on your investment returns. Dividend ETFs have the added advantage of paying you a regular income.
Frequently Asked Questions
The number one dividend ETF will depend on a number of factors including the dividends it pays and the price performance of its shares. Our list should help you make the right choice.
Dividend-paying stocks can be good long-term investments regardless of their fluctuating share prices, and the same goes for dividend ETFs that reduce the risks of owning individual shares.
Investors buy ETFs if they want to trade a basket of stocks with lower charges than managed mutual funds and with the flexibility to buy or sell at a quoted price at any time during the trading day.
A share is a unit of stock in a particular company that gives you part ownership of that company. An ETF is a basket of stocks — such as those in the FTSE 100 index — that you can buy and sell as a whole.
Beginners benefit from the diversified nature of ETFs, meaning that a single stock going bust won’t obliterate your investment. They are as easy to buy and sell as individual shares. Dividend ETFs may be particularly attractive to long-term investors.
There are around 96 funds compromised in the dividend ETF universe.