7 Best Dividend ETFs of January 2024

Retirees have long flocked to dividend stocks because they generate income without requiring investors to sell any shares — but betting on individual stocks is risky business. The advent of the high-dividend ETF allowed not just retirees, but all investors, to profit from their holdings without putting all their eggs in one basket.

See: 3 Things You Must Do When Your Savings Reach $50,000

The following is a look at some of the top income-producing ETFs and how you can choose the one that’s right for you.

What Are the 7 Best Dividend ETFs?

Knowing that the best dividend funds aren’t necessarily those with the highest yields, consider the following seven income-generating ETFs, which pay good yields while also displaying healthy fundamentals, like holdings, expenses and assets under management:

1. SPDR S&P 500 ETF Trust

2. ProShares S&P 500 Dividend Aristocrats ETF

3. GraniteShares HIPS US High Income ETF

4. Vanguard High Dividend Yield ETF

5. Vanguard FTSE Emerging Markets ETF

6. Vanguard Real Estate ETF

7. iShares iBoxx $ High Yield Corporate Bond ETF

1. SPDR S&P 500 ETF Trust

Formed in 1993, SPDR S&P 500 ETF Trust (SPY) is the oldest ETF in the United States — and perhaps the most stable. It generally displays the highest asset under management rankings and the most significant trading volume.

SPY tracks the S&P 500, the stock market’s benchmark index that represents 500 of the largest corporations in America.

2. ProShares S&P 500 Dividend Aristocrats ETF

NOBL plucks the cream of the crop from the S&P 500 — the so-called Dividend Aristocrats, a handful of companies that have raised their dividends every year for at least 25 years straight. There are currently only 68. Only the world’s most stable, profitable and resilient companies can consistently grow their dividends for a quarter century through changing market conditions — most of these aristocrats have done it for 40 years or more.

3. GraniteShares HIPS US High Income ETF

GraniteShares HIPS US High Income ETF (HIPS) bills itself as “historically one of the highest-yielding ETFs in the U.S. market.” With a yield approaching double digits, it’s certainly up there — but the trade-off is a painfully high expense ratio. It provides exposure to four alternative high-income categories: BDCs, MLPs, closed-end funds and REITs.

4. Vanguard High Dividend Yield ETF

VYM offers exposure to domestic dividend stocks from a variety of industries by tracking the FTSE High Dividend Yield Index, which includes more than 400 securities. It emphasizes the financial, healthcare and consumer staples segments.

5. Vanguard FTSE Emerging Markets ETF

This high-dividend ETF focuses on stocks from emerging markets like China, Brazil, South Africa and Taiwan. Its yield is impressive and its expense ratio is dirt cheap, but tread lightly. Emerging market funds like this one have high growth potential but also high risk. VWO is designed for long-term investors who can tolerate a greater level of volatility.

6. Vanguard Real Estate ETF

VNQ is a sector-specific ETF that invests in domestic stocks issued by real estate investment trusts. The fund attempts to track the MSCI US Investable Market Real Estate 25/50 Index. While it has some growth potential, the fund’s primary objective is to generate income. The expense ratio is 0.12% — quite low compared to the average 1.09% for similar funds, according to Vanguard.

7. iShares iBoxx $ High Yield Corporate Bond ETF

The iShares iBoxx $ High Yield Corporate Bond ETF is a fixed-income fund that attempts to track the results of the Markit iBoxx USD Liquid High Yield Index, an index of high-yield corporate bonds. Its 30-day SEC yield is the second-highest on this list, but the fees are much lower than the ETF that ranks first by yield.

Which ETF Pays the Highest Dividend?

Global X SuperDividend ETF pays an impressive 11.69% yield, which puts just about every other major fund on the market to shame. It exposes investors to 100 of the world’s highest-yielding dividend stocks and has made monthly distributions for the last 12 years.

What To Consider When Evaluating an ETF’s Dividend Yield

Although it seems counterintuitive, the ETF with the highest dividend yield is not always the best dividend ETF. Outsized yields often prove unsustainable over time and can fall with the price of the stock when market conditions change.

Businesses in distress sometimes offer supersized dividends to lure fresh investors, even if it means paying out more than they’re bringing in. On the other hand, a lower payout ratio that’s slow and steady can be an excellent indicator that an organization is healthy and stable.

What To Consider Before Investing In a Dividend ETF

Dividend investing is attractive because it offers the chance to harvest profits from stocks without selling any shares. Investors flock to exchange-traded funds for the diversity they provide and their simplicity and ease of use. Dividend ETFs offer the best of both worlds, but they are not a magic wealth-generation machine.

Before you choose an ETF, it’s a good idea to:

• Set financial goals.

• Research dividend funds, stock markets and macroeconomic factors.

• Determine the right asset mix.

• Review all current investments.

Once strategy prep is done, it’s time to look for the right ETF. Some of the main aspects to keep in mind include:

• ETF fees: Understanding the expense ratio of an ETF is crucial when figuring out which funds yield the best returns.

• Overall yield: This is a solid indicator of the type of income you can expect from your ETFs, even when dividends aren’t guaranteed over time.

• Asset liquidity: If an ETF has less asset availability, it could become a challenge to sell it when the time comes.

It’s important to remember that all investment types could lead to losses. That’s why it’s vital to evaluate which funds invest in riskier assets and which stay on the safer side. Although dividend yield is a great tool to pick the best dividend-paying stocks, it’s not all there is to dividend investing. You should also evaluate share prices to avoid getting involved with struggling companies.

Are Dividend ETFs Worth It?

High-dividend ETFs are an excellent choice for veteran and beginner investors alike, depending on their short- and long-term financial goals. Dividend ETFs offer shareholders a passive income stream that can increase over time as shares appreciate.

Keep in mind that there’s no rule saying you must choose only one ETF. A blend of funds can further diversify your holdings and let you fine-tune your investing strategy to match your goals.

Daria Uhlig and Daniela Rivera-Herrera contributed to the reporting for this article.

Data is accurate as of Jan. 8, 2024, and is subject to change.

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

This article originally appeared on GOBankingRates.com: 7 Best Dividend ETFs of January 2024