What Is a High-Dividend ETF?


Quick Answer

A high-dividend ETF is an exchange-traded fund that seeks to produce a high dividend yield for investors by investing in stocks that consistently pay high dividends. A high-dividend ETF usually contains stocks that have a history of paying above-market dividends or blue-chip stocks that are regarded as extremely safe.

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Full Answer

A dividend ETF is classified according to the stocks it contains; some ETFs contain only domestic stocks, while others exclusively contain international stocks. Risks associated with ETFs include capital losses and dividend cuts. Before investing in a specific dividend ETF, an investor should be certain that the ETF matches his goals and risk tolerance.

ALPS Sector Dividend Dogs has a current yield of 3.3 percent, expense ratio of 0.4 percent and assets worth $840 million, notes Kiplinger. Sector Dividend Dogs uses Dogs of the Dow strategy to invest in highest-yielding stocks of the 10 components in the Standard and Poor's 500-index.

IShares Select Dividend ETF provides a good option for investors because it yields 3.1 percent on investments and an expense ratio of 0.39 percent, advises Kiplinger. The ETF has assets valued at $14.1 billion, with 35 percent of the assets in utilities. Schwab U.S. Dividend Equity not only gives a good yield, currently at 2.9 percent, but also features the least expense ratio of 0.07 percent and $2 billion asset value. The fund is less volatile to market changes and only features investment companies that possess strong fundamentals and have a minimum worth of $500 million.

SPDR S&P Dividend ETF, which has a current yield of 2.3 percent and $12.9 billion assets, consists of companies that have consistently increasing dividend yields for the past 20 years, according to Kiplinger. The fund operates at a cost of 0.3 percent. Vanguard Dividend Appreciation and WisdomTree MidCap Dividend yield 2.1 and 2.5 percent respectively. The former has an expense ratio of 0.10 percent.

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