Best Dividend ETFs 2023

Dividend ETFs (Exchange-traded funds) are a great way to produce and income for your retirement, while still having the ability for capital growth. But dividend ETFs are not just for those looking to live off the income, you can opt to reinvest your dividends in more ETF units – meaning your dividend income will grow over time.

What is an ETF

An ETF is an exchange-traded fund, but what does this mean? Basically, they are bundles of stocks (shares) that are put together to mimic an index or sector. So a FTSE100 ETF would hold all the company shares in that index. When you buy that ETF, you are buying the whole FTSE100 which is great for diversification.

ETFsSource: https://www.visualcapitalist.com/

Why Dividend ETFs

A dividend ETF is built to pay a high dividend and is made up of company stocks and shares that pay high dividends. These can be country-specific (US Dividend ETF) or global dividend ETF. You can also buy Emerging market dividend ETFs for high dividends and growth potential.

As many high paying dividend shares are in specific sector like utilities and mining, some dividend ETS will diversify with high dividend-paying REITS (Real estate investment trusts).

Accumulation V Distribution Dividend ETFs

There are two main types of dividend ETFs: Accumulation and Distribution. Accumulation ETFs do not pay out dividends but reinvest them, increasing the net asset value (NAV) of the fund. Distribution ETFs pay a dividend, usually on a quarterly basis.

Note: You can invest in a distribution dividend ETF but opt not to receive cash payments, but more shares in the fund instead – this way your overall dividend will be increasing over time. You can then opt for dividend cash payments when you retire.

Here’s a few of the currently top-paying dividend ETFs I have found.

Global X SuperDividend ETF

Ticker: SDIV
Net Assets: $774, 428,271
Distribution Yield: 7.46%
Total Stocks Held:

Global X have been around for about 10 years and specialise in innovative ETFs. The Superdividend ETF is comprised of the top 100 stocks worldwide with the highest paying dividends.

The stocks are geographically diversified, with 25.6% being US-based, the top sectors are Real estate and Financials

Vanguard High Dividend Yield ETF

Ticker: VYM
Net Assets: $40.2 Billion
Distribution Yield: 7.58%
Total Stocks Held: 410

High dividend yield ETFs can be used as a segment of a portfolio to defend against declining dividends, think oil companies and how they have cut dividends due to the pandemic. The fund looks at the projected dividends of companies and picks stocks with growing dividends over time.

This dividend ETF holds shares from high dividend USA companies

iShares Core Dividend Growth ETF

Ticker: DGRO
Net Assets: $15.7 Billion
Distribution Yield: 2.33%
Total Stocks Held: 392

A solid ETF that looks at companies with growing dividend payments over time. The fund concentrates on US stocks that are likely to have dividend growth. The main sectors are information technology,  finance and health –  these sectors make up 56% of the portfolio.

iShares International Select Dividend ETF

Ticker: IDV
Net Assets: $3.8 Billion
Distribution Yield: 5.44%
Total Stocks Held: 96

This fund is for investors with too much exposure to US stocks and looking to diversify as this ETF does not hold any US stocks but typically high yielding stocks across Europe and Asia. See the country break down below:

geo distribution

iShares Emerging Markets Dividend ETF

Ticker: DVYE
Net Assets: $795 Million
Distribution Yield: 5.35%
Total Stocks Held: 95

This dividend ETF focuses on high paying dividend stocks in emerging markets with the top 3 countries being China, Russia and South Africa.

Schwab U.S. Dividend Equity ETF

Ticker: SCHD
Net Assets: $45,731,368,045.32
Distribution Yield: 3.68
Total Stocks Held: 105

Schwab U.S. Dividend Equity ETF (ticker: SCHD) is an exchange-traded fund designed to provide investors with exposure to high dividend-yielding U.S. companies. SCHD tracks the Dow Jones U.S. Dividend 100 Index, which includes 100 high dividend-yielding U.S. companies with a record of consistently paying dividends, selected for their financial health and stability.

The fund invests in companies across various sectors, providing a diverse investment portfolio. SCHD has a relatively low expense ratio at 0.060%, which is an appealing feature for cost-conscious investors. It offers both the potential for capital appreciation and a reliable income stream, making it an attractive option for those investors looking for regular income and long-term growth. However, remember to research the most current information and consider your individual financial goals and risk tolerance before investing.

If you are looking at solely income from dividends, you also want to consider growth a few sector-specific ETFs with good long term growth potential like Vanguard Information Technology ETF and Health Care Select Sector SPDR ETF.

JPMorgan Equity Premium Income

Ticker: SCHD
Net Assets: $1.6 BN
Distribution Yield: 3.63
Total Stocks Held: 130

Top Holdings

Best Dividend ETFs 2023 2

JPMorgan Equity Premium Income ETF  is a unique offering in the exchange-traded fund space that aims to provide investors with consistent income while also offering the potential for capital appreciation. It uses an innovative approach of investing in large-cap U.S. equities while also selling options to generate additional income.

JEPI’s strategy involves owning a diversified portfolio of blue-chip stocks from the S&P 500 and selling individual stock options to generate income, providing a stream of cash flow that is typically higher than traditional equity income strategies.

JEPI offers a higher-than-average yield, making it a compelling choice for investors seeking income. However, the risks and costs associated with its unique option-selling strategy should be carefully considered. As with any investment, it’s important to stay up-to-date with the fund’s performance and strategies and assess its fit with your financial goals and risk profile.

How much do I need need to invest for an income of £1000 per month?

You will need at least £250K to produce this level of income, based on a 5% dividend payments per year.

How much do I need to save to have £250K in the future?

I have used a compounding calculator to do some sums.  Based on a yearly return of 10% (which you would expect from reinvesting dividends over 20 years) – you would need to save £300/mth. The calculations below are also based on a £5000 initial investment.

 

How to save £250,000