What is the best high dividend ETF for 2023?
Are you curious about the best dividend ETF for 2023? In this article, we discuss 4 ETFs that are definitely worth considering if you want to achieve a high dividend yield! We also briefly discuss what high dividend ETFs are and how to buy them.
What are dividend ETFs?
An ETF, or exchange-traded fund, is traded on the stock exchange and aims to closely track an index. ETFs can be very useful as you can easily diversify your money across a large number of stocks.
There are thousands of different ETFs you can invest in. A dividend ETF is a fund that primarily invests in stocks that pay a high dividend. Companies may choose to pay a portion of their profits as dividends.
To read more details about what ETFs are and how they work, read this article:
How to buy dividend ETFs?
You can invest in dividend ETFs through a broker. In the overview below you can see which brokers you can use for investing in high yield dividend ETF’s:
|Buy dividend ETF's without commissions. Your capital is at risk. Other fees may apply.|
|Speculate on price increases and decreases of dividend ETF's with a free demo!|
|Benefit from low fees, an innovative platform & high security!|
What are the best high dividend ETFs?
In this part of the article, we discuss some interesting ETFs that you can use to benefit from a high dividend.
Vanguard FTSE All-Word High Dividend Yield
The average dividend for the Vanguard FTSE All-World High Dividend Yield is around 3 to 4 percent per year. The costs are reasonable at 0.29%, and the fund contains no less than 1,835 stocks, which provides a solid level of diversification. This fund invests in stocks from around the world, but America is clearly dominant. You can find the ETF under ISIN code IE00B8GKD.
VanEck Vectors Ms Developed Markets Dividend Lead
You can find this ETF under ISIN code NL0011683594. This is an interesting ETF if you want to invest in companies in developed countries with a high dividend payout. The dividend yield fluctuates, just like the underlying stock prices, but averages around 4 to 5 percent per year.
A disadvantage of this ETF is the limited diversification: at the time of writing, the ETF contains only 98 shares. However, the fund is well-diversified across different regions: America, Europe, Canada, and Japan are the largest regions included.
Deka DAXplus Maximum Dividend UCITS ETF
When you have a lot of confidence in the German stock market, this is an interesting ETF to consider. By investing in this ETF, you invest in stocks included in the DAX with a high yield.
With a management fee of 0.3%, this can definitely be an attractive option. However, be aware of the limited diversification: with this ETF, you only invest in German stocks and the car manufacturers Daimler and BMW have a significant weight due to this. You can find this ETF under ISIN DE000ETFL235.
SPDR S&P US Dividend Aristocrats
With this ETF, you invest in stocks that have consistently paid out signidicant dividends (so far). This ETF only includes companies that have raised their dividend every year for the past 20 years. These types of companies are also known as dividend aristocrats, hence the name of this ETF.
One disadvantage of the SPDR S&P US Dividend Aristocrats is that the diversification is minimal: it only includes American companies. However, there is sufficient diversification across different sectors. The expense ratio is 0.35% per year. You can find this ETF under ISIN code IE00B6YX5D4.
Why invest in a high dividend ETF?
It can be attractive to invest in high dividend ETFs as this allows you to build a passive income from your investments. When you regularly invest money, this can add up significantly over the long term.
It is also less painful when the prices decline. Many high dividend stocks are stable value stocks that can still pay out a portion of their profits in the form of dividends.
What are the disadvantages of a high dividend ETF?
You benefit less from compound interest with a high dividend ETF. When you invest in an ETF that reinvests the dividend, your returns can grow faster. Of course, you can choose to reinvest your dividend yourself.
The diversification is often more limited with high dividend ETFs than with broader ETFs. The fund manager only selects funds that pay high dividends, so many companies are immediately excluded.
Not the best performance
Companies that pay high dividends are not necessarily the best companies. A company that constantly pays dividends often sees no more opportunities for growth. Growth stocks that do not pay dividends can generate a higher return on investment if they are successful, simply through price gains.
Dividend payments can dissapoint
Also, keep in mind that a dividend payout can disappoint even with a high dividend ETF. In difficult times (such as during the COVID-19 pandemic), companies may decide not to pay dividends temporarily.
It is also important to remember that dividend payments within an ETF can lead to dividend leakage. You then lose part of your dividend due to unfortunate tax agreements.
You may notice with a high dividend ETF that the price can drop significantly when many companies lower their dividends. When the economic situation is poor, promises can no longer be kept. Because the price subsequently drops sharply, you cannot simply sell the ETF either. Therefore, take this risk into account when you want to invest in a high dividend ETF.
What to consider when selecting a high dividend ETF?
It is important to spend enough time selecting an ETF. Pay attention to these characteristics:
- Costs: how high are the annual management costs?
- Diversification: are you investing in diversified shares?
- Dividend: how much dividend does the ETF pay out on average?
- Performance: how are the underlying stock prices developing?
- Dividend leakage: is there a high level of dividend leakage?
Once you have selected an ETF, it may be wise to periodically invest. You will then benefit from an average return since you spread out the purchase moments. This prevents you from investing your money at the peak of the market.
Frequently Asked Questions About High Dividend ETFs
Many people blindly focus on a high dividend yield, but a high dividend does not necessarily make an investment better. An ETF can easily rise or fall 10 or 20 percent in a year. If you receive 5% dividend annually, but the ETF drops by 20%, you will still lose a lot of money. It is therefore important to thoroughly research individual dividend ETFs so that you can make an informed decision.
An ETF that pays out dividends is especially attractive when you plan to use the money for something else. Due to dividend leakage, you lose part of the money in many cases. You also achieve a lower long-term return when you do not reinvest the dividend. Therefore, first make a plan and decide based on that plan whether it is attractive to invest in a high dividend ETF.
High dividend ETFs typically invest in more stable value stocks. Only companies that have been around longer and have a stable income stream typically pay a fixed dividend. New, revolutionary companies prefer to reinvest the money to achieve an even higher profit in the future. Therefore, if you want to achieve a high return, it may be more interesting to invest in growth stocks with high potential.
Try trading risk free?