7 Best Dividend ETFs Of March 2023 (2023)

*All data is sourced from Morningstar, current as of February 21, 2023.

We screened the entire universe of dividend ETFs using four factors:

• Low expense ratios.
• High dividend yield.
• Good five-year trailing returns.
• Top 20% category rank.

From the resulting list of the most attractive dividend ETFs, we selected a diverse mix of stock, bond and real estate funds that garnered neutral to high Morningstar ratings. Finally, we polished the list by choosing well-regarded fund families with reasonable investment strategies.

To learn more about our rating and review methodology and editorial process, check out our guide on How Forbes Advisor Rates Investing Products.

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.

Related: Find A Financial Advisor In 3 minutes

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.

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.

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.

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.

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.