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10 high-dividend ETFs to watch

Stocks and exchange-traded funds​ (ETFs) that pay a high-yield dividend to shareholders are becoming increasingly important for investors. This article covers a selection of high-dividend ETFs that could help to diversify your trading portfolio and increase its overall yield.

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Do ETFs pay dividends?

As exchange-traded funds are made up of a number of stocks (or bonds), they offer full dividend payouts in the same way that a single share would. Most do this on a quarterly basis by collecting dividends paid by the underlying shares during this 3-month holding period and subsequently making payouts to shareholders on a pro-rata basis. Dividend payments can either be paid in the form of cash or additional shares of the ETF.

ETFs can be set up as either income or accumulation. Income ETFs make sure that dividend income is paid out to investors as cash, whereas accumulation ETFs do not offer a dividend. Instead, their income is reinvested, which can cause the price of the ETF to increase.

Most of the time but not always, dividend-yielding ETFs consist of stocks rather than bonds, although there are some exceptions, such as the iShares Broad USD Investment Grade Corporate Bond ETF, which offers a reasonable dividend yield of 2.54%.

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What is a dividend yield?

A dividend yield is a fundamental ratio that shows how much a company pays out in dividends to shareholders each year, relative to its stock price. This is often expressed through a percentage and is considered a reward to investors for their loyalty to the company.

Therefore, a dividend ETF attempts to mirror the movements of the index that it is tracking, re-producing a similar yield percentage. High-dividend ETFs often track indices that hold a collection of blue-chip or growth stocks as these tend to offer better payouts.

List of dividend ETFs

Here is a selection of dividend ETFs that rank among the highest in the industry. Please note that the dividend percentages reflect either a monthly or quarterly period, depending on the frequency of each company’s distribution. The information in this article is up to date as of July 2021.

Alerian MLP ETF (AMLP)

This ETF gives investors exposure to an energy infrastructure-based index, where its holdings earn the majority of their cash flow from midstream activities, such as the storage, transportation and marketing of oil and natural gases. These assets are vital for connecting energy production with global demand. These types of master limited partnerships (MLPs) do not have to pay taxes at the entity level so they can distribute more of their cash flow to investors, and this fund is constantly liquid, given the popular industry and its top holding companies, such as Phillips 66 Partners, MPLX and Western Midstream.

Dividend yield: 7.75%
Expense ratio: 0.85%
P/E ratio: 13.22

Global X SuperDividend ETF (SDIV)

This fund invests in the highest dividend-yielding equities in the world. It tracks and seeks to replicate the performance of an index that contains over 100 stocks from a wide range of countries and sectors. This ETF can help to increase your portfolio’s yield and diversify your geographic and interest rate exposure. SDIV has made contributions on a monthly basis for over nine years. Top holdings of the fund include Evraz, China Dongxiang, Electra Consumer Products, M&G and Sinopec.

Dividend yield: 6.84%
Expense ratio: 0.59%
P/E ratio: 6.98

Global X SuperDividend U.S. ETF (DIV)

This ETF invests in 50 of the highest dividend-yielding equities that are listed on US stock exchanges. The fund screens for stocks that have low betas relative to the benchmark S&P 500 index in order to produce low volatility returns and increase the portfolio’s overall yield. Consumer staples, real estate, industrials and energy are the most prominent sectors of the fund as it holds companies such as 3M, Pfizer, Philip Morris, Gilead Sciences and CubeSmart.

Dividend yield: 4.91%
Expense ratio: 0.45%
P/E ratio: 13.85

iShares Emerging Markets Dividend ETF (DVYE)

This ETF seeks to track the investment results of an index that is made up of approximately 95 high dividend paying equities and cash products from emerging markets, such as South Africa, Russia, Indonesia and Brazil. Investors may be interested in using the DVYE fund to expand their income strategies to emerging economies. Examples of top holdings include Transneft, Kumba Iron Ore, Globaltrans, Adaro Energy, Severstal and Taesa.

Dividend yield: 4.70%
Expense ratio: 0.49%
P/E ratio: 8.41

BMO Canadian Dividend ETF (ZDV)

This exchange-traded fund provides exposure to a yield weighted portfolio of Canadian stocks that pay a high dividend, which have been measured over three years for dividend growth rate, yield and payout ratio. This fund may provide sustainable income and lower volatility than the market average. Some top holdings out of the 50 included are Royal Bank of Canada, Enbridge, BCE and Thomson Reuters.

Dividend yield: 4.13%
Expense ratio: 0.39%
P/E ratio: 21.02

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First Trust Morningstar Dividend Leaders Index Fund (FDL)

This fund tracks the performance of an index created by US financial services company Morningstar. The index consists of stocks that are listed on either the NYSE, Nasdaq or NYSE Amex exchanges that have shown dividend consistency and sustainability. The weighting of each holding has been capped in order to enhance portfolio diversification for shareholders. Top holdings include Chevron, Pfizer, Merck, Coca-Cola and AbbVie.

Dividend yield: 3.75%
Expense ratio: 0.45%
P/E ratio: 21.02

SPDR S&P International Dividend ETF (DWX)

This fund seeks to provide exposure to 100 of the highest yielding international common stocks, which have passed certain sustainability and earnings growth screens. DWX aims to achieve diversification by not allowing any single country or industry/sector to fill more than 25% of the fund, and it caps emerging markets exposure at 15%. Furthermore, no stock weighting can be greater than 3%, so its holdings are all relatively similarly weighted and include Shaw Communications, GlaxoSmithKline and TotalEnergies.

Dividend yield: 3.46%
Expense ratio: 0.45%
P/E ratio: 14.27

First Trust STOXX European Select Dividend Index Fund (FDD)

This exchange-traded fund looks to track results that mirror the price and yield of a dividend weighted index of 30 stocks taken from a European-based exchange. The index is made up of companies from 18 countries that have a positive five-year dividend-per-share growth rate and a dividend to EPS ratio of less than 60%. Each component’s weighting is capped at 15%. Top European holdings within the fund include Legal & General, IG Group, Orange, Telecom Italia and Allianz.

Dividend yield: 2.98%
Expense ratio: 0.57%
P/E ratio: 8.83

Vanguard Real Estate ETF (VNQ)

This ETF invests in stocks issued by real estate investment trusts (REITS), hotels and companies that purchase property. It contains over 170 shares that could offer potential for investment income and growth. Its low expense ratio is common with REITs as they must deliver 90% of taxable income back to shareholders, which can present itself in the form of dividends. Top holdings include Simon Property Group, Equinix, American Tower Corp and Prologis.

Dividend yield: 2.79%
Expense ratio: 0.12%
P/E ratio: 45.8

Vanguard FTSE All-World High Dividend Yield UCITS ETF (VHYL)

This fund takes on a passively managed investment approach. Its investment objective is to track the performance of a FTSE-based index which focuses on large and mid-cap stocks that pay above-average dividends to shareholders, excluding real estate trusts. This includes over 1,500 global holdings from both developed and emerging markets, such as JPMorgan Chase, Nestle, Johnson & Johnson, Roche and Taiwan Semiconductor Manufacturing Company.

Dividend yield: 2.50%
Expense ratio: 0.29%
P/E ratio: 14.4

How to trade on dividend ETFs

  1. Open a live account to access over 1,000+ exchange-traded funds in our Product Library.
  2. Choose whether to spread bet tax-free* or trade CFDs globally on the price movements of our high-dividend ETFs.
  3. Pick your instrument based on its yield, P/E ratio and other fundamental factors.
  4. Take caution when trading high-risk assets as these may bring higher rewards but also a higher chance of losses. Read our risk-management guide for guidance on controlling risk.
  5. Remember that ETFs can be adjusted and re-balanced on a regular basis, which may have an effect on your open positions.
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Do you pay taxes on ETF dividends?

An exchange-traded fund can pay out both qualified dividends and non-qualified dividends. Qualified dividends are taxed at the long-term capital gains rate if held for more than 60 days, which can be at a rate of 5%, 15% or 20%. Non-qualified dividends occur if you hold the ETF for less than 60 days and these are taxed at the investor's normal income tax rate. Dividends earned on exchange-traded funds or mutual funds are usually taxable if you hold the asset for over a year, even if you reinvest your earnings.

Tax treatment for ETFs can be a difficult concept to get your head around. When trading on the price movements of ETFs rather than investing and holding the asset, you are not liable for these taxations and instead, you will only pay derivative costs such as spreads, commissions and holding costs (plus capital gains tax if trading CFDs). Visit our trading costs​ page for further details.

How are dividends paid on ETFs?

Dividends are usually paid on a monthly or quarterly basis by the fund holder in the form of cash or additional shares of the ETF. If investing in ETFs directly, you will be able to check the dividend date of payment on the fund’s website or through your account.

When spread betting or trading CFDs on ETFs with CMC Markets, any relevant dividends will be distributed to your account, either in the form of credit or debit, depending on if the dividend amount has increased or decreased. Learn more about how these types of corporate actions​ can have an effect on your account.

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FAQS

How are ETF dividends allocated?

ETF dividends are allocated based on how many shares an investor owns from the outstanding amount, where they own the right to a certain percentage. The total amount of dividends in an ETF are then distributed to shareholders of the ETF on a per-share basis. Read more about exchange-traded funds.

Is it better to own dividend ETFs or stocks?

Many investors will argue that dividend ETFs may present less risk than individual stocks, as an ETF portfolio may contain 100 shares, which spreads the risk more evenly between assets. If a company were to cut or reduce their dividend, for example, this would have a lesser impact on your overall ETF position than if you were trading on a single share. Read about risk-management in trading.

What are the highest-yielding dividend stocks?

Check out our article on the highest-yielding dividend stocks in the UK right now from the FTSE 100 stock index and learn how to identify the top dividend stocks using fundamental analysis.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.