5 Best Dividend ETFs to Watch in 2025

Introduction

Many investors consider dividend stocks as an alternative to bonds because they also pay cash dividends. However, the risk of such stocks is also higher because the company may stop paying dividends at any time.

If you want to invest in dividend stocks but are not willing to take high risks, I suggest you consider investing in dividend ETFs. This way you can spread your risk across dozens or hundreds of stocks. Even if a few of them stop paying dividends, the impact will be minimal.

I will provide a list of the best dividend ETFs worth investing in 2025. This list is based on my extensive investment experience and has been screened from dozens of ETFs. If you are a beginner, this article will be an investment guide for dividend ETFs, and I suggest you read this article before investing money.

What are Dividend ETFs and Why Should You Invest in Them?

The dividend yield calculation method is very simple: divide a stock's annual dividend by the current stock price. When the stock price changes similarly, the higher the dividend yield, the more dividends the stock has. Many investors hope to invest in stocks that can receive long-term dividends because they can obtain stable cash returns.

However, investing in a stock that pays dividends requires taking risks. If the company is in trouble, the stock price is falling, or the company cuts or even cancels dividends, investing in dividend ETFs becomes a better choice.

Dividend ETFs focus on holding stocks with a history of distributing dividends to shareholders. Dividend-paying stocks usually come from more mature companies, who hope to convey information about the company's financial stability to shareholders through this method.

For beginners, choosing a dividend ETF is a safer option. You can spread risk across hundreds or even thousands of stocks through a dividend ETF. Even if a few stocks stop paying dividends, the impact on the overall ETF is minimal.

Pros and Cons of Dividend ETFs

Key Factors to Consider When Choosing Dividend ETFs

Expense Ratio

Although ETF fees are generally low, you should still understand the ETF's expense ratio before investing. Some ETFs may have higher fees, which can erode your returns in the long run.

Dividend Yield

Paying attention to the dividend yield of a dividend ETF can help you determine your future income. Although future dividends are not guaranteed, stable and high-dividend yields mean that stocks in ETFs have stronger financial conditions and higher risk resistance.

Returns

While paying attention to dividend yields, you should also check the long-term return performance of the fund. Your overall investment will also be affected if an ETF has a good dividend yield but returns decline. I suggest you choose ETFs with returns higher than the yield.

Distribution Frequency

Understand the dividend payment frequency of ETFs. Several common dividend payment frequencies include monthly, quarterly, semi-annual, and annual dividend payments. Paying dividends more frequently may also result in higher returns for you.

Portfolio Makeup

Keep an eye on the ETF’s holdings. If an ETF has a high exposure to stocks in a certain industry, this ETF will lack diversity, which means its risk might be higher.

Best dividend ETFs

Based on the key factors mentioned above, I used Intellectia's powerful feature, AI Screener, to screen out the 5 best dividend ETFs to buy in 2025.

• SCHD - Schwab U.S. Dividend Equity ETF
• VYM - Vanguard High Dividend Yield ETF
• SDY - SPDR S&P Dividend ETF
• HDV - iShares Core High Dividend ETF
• SPHD - Invesco S&P 500 High Dividend Low Volatility ETF

1. SCHD - Schwab U.S. Dividend Equity ETF

Founded in 2011, Schwab U.S. Dividend Equity ETF (SCHD) is an ETF that tracks the performance of the Dow Jones U.S. Dividend 100 Index. SCHD has a low expense ratio of 0.06%.

As of the end of 2024, SCHD's total net assets are approximately $68.1 billion, with a total shareholding of 103. SCHD distributes cash dividends every quarter. According to Nasdaq's data, its current dividend yield is 3.79%.

90% of the companies in SCHD's investment portfolio have a market value of $15 billion or more, with the majority being blue chip stocks. SCHD has no high-risk exposure in any specific industry, and its shareholding in each stock does not exceed 5%.

• Top 5 Holdings: Cisco (4.25%), Pfizer (4.24%), Texas Instruments (4.12%), Coca-Cola (4.08%), Chevron (4.06%).
• Top 5 Sectors: Financials (18.73%), Health Care (16.67%), Consumer Staples (14.37%), Industrials (13.28%), Energy (11.67%).

2. VYM - Vanguard High Dividend Yield ETF

VYM is an ETF that tracks the performance of the FTSE High Dividend Yield Index, which measures the investment return on common stocks of high dividend-yielding companies. VYM also has a low expense ratio of 0.06%.

The number of shares in VYM's portfolio reached 533, the same as the index. Holding more shares means that the ETF has stronger risk resistance. Even if a few companies in the portfolio stop paying dividends, the impact on the entire ETF is minimal.

Although VYM has low risk, its return rate and dividend payout ratio are also low. According to Nasdaq data, VYM's current dividend yield is 2.92%, lower than SCHD's 3.79%. In addition, VYM's average return rate over the past five years is 9.74%, which is also lower than SCHD.

• Top 5 Holdings: Broadcom (6.00%), JPMorgan (3.84%), Exxon Mobil (2.75%), Procter&Gamble (2.25%), Walmart (2.23%).
• Top 5 Sectors: Financials (22.60%), Industrials (12.04%), Technology (11.2%), Health Care (10.90%), Consumer Discretionary (10.30%)/Consumer Staples (10.30%).

3. SDY - SPDR S&P Dividend ETF

The SPDR S&P Dividend ETF (SDY) tracks the S&P High Yield Dividend Aristocrats Index. This index selects companies that have continuously increased their dividends for more than 20 years and weights their stocks based on their returns.

Since the stocks in SDY have a long history of increasing dividends, you don't need to worry too much about some stocks in ETFs stopping paying dividends. According to Nasdaq data, the current dividend yield of SDY is 3.08%.

Unfortunately, the dividend yield of SDY is high, at 0.35%. If you hold this ETF for a long time, higher costs will erode your returns.

• Top 5 Holdings: Chevron (2.38%), Realty Income (2.20%), Xcel Energy (1.79%), Wec Energy (1.78%), Kenvue (1.66%).
• Top 5 Sectors: Industrials (19.37%), Consumer Staples (17.97%), Utilities (15.93%), Financials (11.11%), Materials (8.20%).

4. HDV - iShares Core High Dividend ETF

The IShares Core High Dividend ETF (HDV) benchmark index is the Morningstar Dividend Yield Focus Index. Morningstar selects stocks in this index that can provide high dividends and have good long-term investment potential. Nasdaq's data shows that HDV is a high-dividend ETF, with a 3.92% dividend yield.

However, since HDV's investment portfolio only includes 75 US stocks and the energy sector has high exposure (nearly 30%) in the entire ETF, its risk resistance is inferior to other ETFs. In addition, the average return rate of HDV in the past five years is not high, only 6.79%.

• Top 5 Holdings: Exxon Mobil (9.59%), Johnson&Johnson (6.66%), Chevron (6.12%), Procter&Gamble (5.16%), Philip Morris (4.57%).
• Top 5 Sectors: Energy (27.02%), Consumer Staples (25.88%), Health Care (15.20%), Utilities (11.18%), Information Technology (10.57%).

5. SPHD - Invesco S&P 500 High Dividend Low Volatility ETF

The holdings of Invesco S&P 500 High Dividend Low Volatility ETF(SPHD) are only 52 stocks. Because SPHD invests at least 90% of its assets in stocks in the S&P 500 Low Volatility High Dividend Index.

If you invest in SPHD, you can receive cash dividends from SPHD every month just like receiving a pension. Moreover, data from Nasdaq shows that the dividend yield of SPHD is not low, at 3.41%. If you are looking for the best monthly dividend ETF to achieve long-term stable cash returns, then SPHD would be a good choice.

However, the expense ratio of SPHD is 0.3%, which is lower than most mutual funds but higher than most ETFs.

• Top 5 Holdings: Kinder Morgan (3.48%), Bristol-Myers Squibb (3.00%), Altria Group (2.95%), AT&T (2.82%), Verizon Communications (2.63%).
• Top 5 Sectors: Utilities (19.60%), Consumer Staples (17.62%), Health Care (13.57%), Real Estate (12.73%), Energy (11.57%).

Conclusion

If you are a cost-conscious investor, I suggest you consider investing in SCHD, VYM, and HDV, which have low expense ratios. If you care about steady returns, then SDY is a good choice because its portfolio includes many companies that paying dividends for over 20 years. Moreover, when you choose to invest in SPHD, you will receive monthly cash dividends, like receiving a salary.

before you invest in a Dividend ETF, I suggest you use artificial intelligence tools, such as Intellectia, for in-depth analysis of ETFs. With advanced algorithms and real-time data, Intellectia can conduct fundamental and technical analysis on ETFs and predict their prices. Using Intellectia can help you identify potential buying signals and make wiser investment choices.

Frequently Asked Questions

How are ETF dividends taxed?

The taxation of ETF dividends depends on the type of dividends distributed. ETFs distribute dividends in two forms: qualified dividends and unqualified dividends. The tax rate for qualified dividends ranges from 0% to 20%. The tax rate for unqualified dividends ranges from 10% to 37%.

Can you live off ETF dividends?

Perhaps, it depends on the size of the funds you invest in and the dividend yield of the ETF. To achieve the goal of living off dividends, you need to do more calculations and make detailed plans to maintain a balance between income and expenses.

Are monthly dividend ETFs riskier than other dividend ETFs?

Monthly dividend ETFs have the same risk as other dividend ETFs. This is because the risk of dividend ETFs mainly depends on the composition of the portfolio. For example, ETFs investing in small-cap stocks may have higher risks than ETFs investing in large blue-chip stocks.