Do exchange-traded funds or ETFs pay a dividend?
Most, but not all exchange-traded funds pay a dividend. Some ETFs are specifically built for income and pay a higher dividend yield than others. You can verify an ETF pays a dividend by looking at the funds overview page and looking for a dividend yield.
Simply put, your investments are giving you a paycheck to live on!
Luckily for you, I’m going to show you how to find if an exchange-traded fund pays a dividend. I will even show you some of the best high yield dividend ETFs to invest in. With the right investments, you can retire early on dividend income.
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Do ETFs pay dividends?
Most, but not all exchange-traded funds pay a dividend. The dividend depends on the ETF’s holdings and the investment goal of the ETF. Some exchange-traded funds pay a higher dividend if they are income-focused.
Exchange-traded funds are made up of multiple stocks. Because these stocks comprise the overall ETF, the individual stocks are called holdings. In other words, the stocks are held within the ETF.
Some of these individual stocks will pay a dividend. These dividends are then passed through to you if you own the exchange-traded fund.
For example, you might own an exchange traded fund that holds AT&T, Amazon, and Tesla. AT&T pays a dividend, but Amazon and Tesla do not. The exchange-traded fund will pay you your portion of the AT&T dividend.
Additionally, each fund has an overall investment goal. Some funds are more focused on growth and others on income. Growth stocks are less likely to pay a dividend because they’re reinvesting profits back into the business.
For example, VOT is the Vanguard Mid-Cap growth ETF which currently pays a 0.39% dividend yield. VYM is the Vanguard high dividend yield ETF which currently pays a 2.85% dividend yield. VYM is more income focused, so it pays a higher yield than VOT.Click to Tweet! Please Share!Click To Tweet
How do you know if an ETF pays a dividend?
To find out if an exchange traded fund pays a dividend, visit the fund overview page and search for dividend yield. You can also find dividend yield through your brokerage account like TD Ameritrade or Vanguard. In addition to finding dividend yield, you’ll also be able to see how frequently the dividend is paid.
Fund overview page
Every exchange-traded fund is created by a brokerage. These brokerages are responsible for providing a fund overview page where you can see the details of the investment.
Not sure who the brokerage is that created a specific ETF? Simply Google search “the ETF + overview” and you should be able to find that specific fund’s overview page.
Not sure where to find exchange traded funds? You can also Google search “the specific brokerage + ETF list” to find all ETFs offered by a specific brokerage. For example, you can find all of Vanguard’s ETFs by Google searching “Vanguard ETF list.”
Most beginners should probably start by browsing Vanguard’s selection of ETFs. Vanguard has some of the best ETFs with the lowest fees. You can always branch out to other ETFs as you learn more about investing.
While you’re on the overview page, you can find a distribution history list. The distribution history is all past payments the ETF has paid out. Therefore, you can look for consistent payers and ideally, payment increases.
Research on brokerage account
Every brokerage, like TD Ameritrade or Vanguard, has a feature which lets you search for different securities. Simply search for the specific fund through your brokerage and look for dividend yield to see if the fund pays a dividend.
What are the best high yield dividend ETFs?
Some of the best high yield dividend ETFs include VYM, VNQ, QYLD, RYLD, and XYLD. Each exchange-traded fund provides a decent income, but you’ll still need to perform your due diligence.
VYM is the Vanguard High Dividend Yield fund with an expense ratio of 0.06% and a dividend yield of nearly 3%. Purchasing this fund gives you access to over 400 stocks that have a higher than normal yield. VYM provides a steady yield, historical growth, and doesn’t cost much to hold.
VNQ is the Vanguard Real Estate Investment Trust which typically pays a good yield and a low expense ratio. The downside to VNQ is that it only exposes you to real estate. Economic events which impact real estate will impact the performance of VNQ.
QYLD, RYLD, and XYLD are all covered call ETFs by Global X. These funds offer high yields between 9-12%, but offer no growth. These covered call ETFs are also a bit more expensive with an expense ratio around 0.60%.
Are dividend ETFs a good investment?
Dividend stock investing has many advantages, such as providing income. The income provided by dividend stocks can supplement or pay for your retirement. However, some dividend paying stocks won’t grow as fast as the S&P 500. Therefore, you could be leaving money on the table depending on your investment strategy.
The main advantage of dividend investing is income, which usually sacrifices growth opportunities. Growth stocks can have more volatility, which could make you more money than dividend investing.
Personally, I’m a fan of getting both growth and dividend ETFs as part of my overall investment strategy. You get some of the income from dividend stocks and it can help minimize volatility during stock market crashes.Click to Tweet! Please Share!Click To Tweet
Summary: Do ETFs pay dividends?
As you can see, most ETFs pay dividends, but not all of them. Exchange traded funds have different goals, so income funds pay a higher yield. How much dividends an ETF pays depends on the fund goals and the ETF holdings.
You can find out if an ETF pays a dividend by the fund’s overview page or through your brokerage. The fund’s overview page details the important information of a specific security. However, the easiest way to find yield is to research on your brokerage account.
My personal favorite dividend paying ETFs are VYM, VNQ, QYLD, RYLD, and XYLD. Each investment has pros and cons which should be researched before investing.
Dividend funds have many advantages, the main advantage being income. However, most dividend funds cannot beat growth fund performance. Therefore, you could be missing out on investment returns by investing in dividends.
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