Dividend stocks are the Tom Hanks of investing: Everyone seems to like them.
Many retirees rely (at least in part) on the regular income that dividend stocks generate. Nonretirees, meanwhile, enjoy “getting paid to wait”—which means collecting regular income from quarterly dividends while holding on for stock price appreciation.
Moreover, in a tough market for stocks overall, dividend stocks held their own in 2022: The Morningstar Dividend Yield Focus Index (which is a collection of quality stocks with stable dividends) outperformed the broad-based Morningstar US Market Index by more than 25 percentage points.
Investors interested in getting exposure to dividend stocks through a managed product can choose from among many mutual funds and exchange-traded funds focused on dividend payers.
18 Best Dividend ETFs and Mutual Funds for 2023
These mutual funds and ETFs focus on U.S. dividend stocks and have at least one share class that earns top Morningstar Analyst Ratings of Silver or Gold as of Jan. 16, 2023.
1) BlackRock Equity Dividend MADVX
2) ClearBridge Dividend Strategy SOPYX
3) Columbia Dividend Income LBSAX
4) Fidelity High Dividend ETF FDVV
5) FlexShares Quality Dividend ETF QDF
6) Franklin U.S. Low Volatility High Dividend ETF LVHD
7) Schwab US Dividend Equity ETF SCHD
8) SPDR S&P Dividend ETF SDY
9) T. Rowe Price Dividend Growth PRDGX
10) T. Rowe Price Dividend Growth ETF TDVG
11) Vanguard Dividend Appreciation ETF VIG
12) Vanguard Dividend Appreciation Index VDADX
13) Vanguard Dividend Growth VDIGX
14) Vanguard High Dividend Yield ETF VYM
15) Vanguard High Dividend Yield Index VHYAX
16) WidsomTree US Large Cap Dividend ETF DLN
17) WisdomTree US Midcap Dividend ETF DON
18) WisdomTree US Small Cap Dividend ETF DES
High-Dividend Stocks vs. Dividend-Growth Stocks
Most dividend mutual funds and ETFs take one of two approaches to investing.
The first group invests in high-dividend stocks. High-dividend stocks are typically from more mature businesses that choose to pay out profits rather than reinvest them. Investors will often find these companies in the financials, energy, utilities, and industrials sectors. High-dividend stocks come with tantalizing yields but carry some risk. Most notably, high-dividend stocks in economically sensitive sectors may be vulnerable during an economic slowdown. Moreover, high-yielding stocks can face interest-rate risk: When rates trend up, investors may swap high-income-producing stocks for bonds.
The second group of dividend funds and ETFs focuses on what are called dividend-growth stocks. Dividend-growth stocks don’t usually boast burly yields like high-dividend stocks do, but they come from companies that are usually financially healthy and that have raised their dividends over time. As such, dividend-growth stocks generally exhibit some resilience during market downturns and economic slowdowns.
For more about how to distinguish between the two types of dividend stock funds and ETFs, read What’s the Difference Between Dividend Yield and Dividend Growth Stocks?
When researching dividend stock mutual funds and ETFs, be sure to understand which approach the fund takes. Find this information on a Morningstar fund or ETF report, under the Fund Analysis tab in the Morningstar’s Analysis section.
Do Investors Need Dividend Funds?
Dividend-paying companies are often larger firms whose stocks are popular holdings among large-cap mutual funds and ETFs. As a result, investors who own large-cap funds may already hold a sizable position in dividend stocks.
For instance, Vanguard Dividend Appreciation ETF’s top three holdings (UnitedHealth Group UNH, Johnson & Johnson JNJ, and Microsoft MSFT) are also among the top 10 holdings of the broad-based large-cap Vanguard Total Stock Market ETF VTI.
That doesn’t mean investors shouldn’t add a dividend fund to their portfolios if they already have exposure to large-company stocks. But investors should be aware of what adding a dividend stock fund may do to the complexion of their current portfolio mix. Use Morningstar’s Instant X-Ray tool to find out.
How to Find Dividend ETFs and Mutual Funds for the Long Term
Given their high Morningstar Analyst Ratings, we expect the top-rated mutual funds and ETFs on our list to outperform over a full market cycle.
That being said, investors may want to expand their search for dividend stock funds beyond this list, using parameters that matter to them. Here are two additional ways to find dividend ETFs and mutual funds to investigate further.
- Some investors may prefer a list of highly rated funds that invest in dividend stocks around the globe, not just in U.S. names. Using the Morningstar Investor screener, select Investment Type (either ETF or Mutual Fund), enter the Keyword “dividend” in the Search Securities section, set Asset Class to International Equity, and check both Gold and Silver beneath Morningstar Analyst Rating.
- Want to find a complete list of dividend stock ETFs or mutual funds available today, not just those with our highest Analyst Ratings? Using the Morningstar Investor screener tool, select Investment Type (either ETF or Mutual Fund) and enter the Keyword “dividend” in the Search Securities section.
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