Best Dividend ETFs of 2024 For Long Term

One way to get rich that does not get enough attention is to buy stocks that pay dividends. Dividend stocks can help you reach your goals, whether they are to build a reliable source of income, own the best companies that will go up in value, which will raise the stock price along the way, or a mix of the two.

Most of the time, it is hard to choose which individual income stocks to buy. This is where dividend ETFs can save the day. A type of fund called an exchange-traded fund (ETF) lets buyers buy a group of stocks on the stock market at once.

ETFs are a great way to get involved with a certain idea. This can include whole markets like the S&P 500, specific types of stocks (like those that pay dividends) or even whole industries like healthcare or tech. You buy a small piece of all the stocks that make up an ETF when you buy shares of that ETF. Right away, you can diversify your stocks and make a strategy that fits your needs and your financial goals.

How to Choose the Best Dividend ETF for Your Needs

A lot of exchange-traded funds (ETFs) pay dividends, and some are even built around stocks that pay dividends. To find the best income ETFs for you, you should first write down what you want to achieve.

The parts that follow will talk about four of the best dividend ETFs, each with its unique traits. There is something for every dividend ETF user, whether they want a high dividend yield, dividend growth, stable income, or the best total returns.

A look at two of the best income growth ETFs

There are three main things that businesses can do with their profit.

• Put the money back into the business to make even more money.
• Save it for a chance or need in the future.
• Give it back to owners through dividends or buying back shares.

The companies with the best economic moats have always made a lot of money, and they always have a little extra to give back to owners in the form of dividends, which they (almost always) raise every year. These stocks with rising dividends are the best of the best.

First, let us look at the Vanguard Income Appreciation ETF. This is the company’s most popular income fund. If you put $100 in this fund, you will get back just 6 cents, which is one of the lowest costs. It follows the S&P U.S. Dividend Growers Index, which is made up of U.S. stocks with 10 years or more of dividend growth. It also has one of the lowest yields among income ETFs, at about 2% as of late March 2023 market prices.

The Vanguard fund may not have a high yield, but its dividend rise more than makes up for it. Between 2018 and 2022, the ETF raised the dividends it paid to owners by 119%. Since 2012, dividends have more than tripled.

Sadly, it has also lagged behind the S&P 500 index in overall returns over the same period. During that time, growth stocks that did not pay dividends were the market’s biggest winners. However, the difference has grown smaller over the past few years as higher interest rates have lowered the values of tech and growth stocks.

Since the start of 2022, the ETF has been the better option. Going forward, higher interest rates could mean better profits for dividend stocks for a long time. This includes the Vanguard Dividend Appreciation ETF.

Another good choice for income growth is the iShares Core Income Growth ETF. The BlackRock-managed ETF (BLK 2.03%) has a similar low-cost structure. Its expense ratio is 0.08%, and its dividend yield is 2.48%, which is a little higher but still not a high return.

The Morningstar US Dividend Growth Index is tracked by the iShares ETF. This ETF has done better than the other dividend-growth ETFs. It has almost equal returns to the S&P 500 over the past 10 years, but it has done better than the market over the last three and one years. There is a good chance that its success will continue in the new environment with higher rates.

A dividend ETF with a high yield

If you want a bigger yield and a track record of beating the market for a long time, the Schwab U.S. Dividend Equity ETF (SCHD 1.43%) with its 3.7% yield at current prices might be a better choice. This dividend ETF is great because it has more to offer than just a high return.

Like the first two ETFs, this one has a low-cost ratio of 0.06% and a history of dividend growth in most years. A lot of the companies it looks at are U.S. companies that have a history of growing their dividends.

But there are some important differences between the companies it goes after. S&P Global says that the Dow Jones U.S. Dividend 100 Index is what the ETF follows. This index looks for “high-dividend-yielding stocks in the U.S. with a record of consistently paying dividends, chosen for fundamental strength compared to their peers, based on financial ratios.

The most important things are a high yield, strong finances, and a past of paying a dividend, even if it does not mean increasing it. Because of this, good companies that temporarily lower their payouts or do not raise their dividends from one year to the next are left out of dividend-growth ETFs but can stay in the Dividend 100 Index and, by extension, this ETF.

In the long run, the plan has worked out well. The Schwab U.S. Dividend Equity ETF has had the best total returns of all the ETFs in this piece since 2013. It has also done slightly better than the S&P 500. It has also done the best over the last five years, though it has not done as well lately.

The same things that have made it successful in the past may continue to do so. If you want a strong overall return or a yield that is above average, the Schwab US Dividend Equity ETF is a good choice.

Are we sure that energy is back? If so, this sector ETF looks good for income.

Energy stocks have not done well for most of the last ten years. When oil prices dropped from over $100 a barrel in 2014, the industry went through a long-lasting downturn. Investors lost billions of dollars because oil companies had to change how they did business to deal with lower costs and less cash.

The 2020 COVID-19 pandemic hit like a second hammer, putting many businesses through an existential crisis from which only the biggest ones made it out alive.

The energy sector has made a huge comeback since the economy got better and Russia invaded Ukraine. This has made it one of the best places to spend over the past three years.

That is great news for dividend investors because most of the biggest and best energy companies pay big dividends that are safe because of their strong operations and cash flows. This makes the Energy Select Sector SPDR ETF (XLE 1.49%) more appealing for dividend investors.

Energy Select Sector SPDR has an expense ratio of 0.10%, which is a little higher than the other ETFs we have talked about. However, it has the best yield of the group, at almost 4%.

The companies it owns, like ExxonMobil (XOM 1.39%), Chevron (CVX 1.3%), Marathon Petroleum (MPC 2.06%), and EOG Resources (EOG 1.34%), maybe the most important thing about it.

One thing to keep in mind about this sector ETF: the yield is high right now, and most of the dividends are likely to stay strong and steady. However, if oil prices drop a lot and for a long time, oil producers that pay a variable income could see their dividends cut. It is also likely to be the most unpredictable.

This is because the stock prices of many of these companies change with the price of oil. This ETF might not be the best choice for you if you want less fluctuation. On the other hand, the Energy Select Sector SPDR could be the best choice if you want high returns with some short-term risk and more volatile share prices.

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