Dividend ETFs are exchange-traded funds that specialize in investing in dividend-paying stocks. These funds are available to investors as a simple choice for investing in a variety of dividend-paying stocks.
One of the key advantages of dividend ETFs is the steady stream of income they may provide. Companies that routinely give dividends do so, providing investors with a consistent flow of income. This may be especially appealing to investors in retirement or other investors who depend on a steady income from their investments.
Another advantage is that dividend ETFs are less volatile than non-dividend-producing stocks. The reason for this is that companies that pay dividends are generally more established and stable, decreasing the likelihood of unexpected changes in stock prices.
With dividend ETFs, investors may also see long-term growth. Businesses that consistently pay dividends outperform those that don’t over time. This is because companies that pay dividends often have more solid financial foundations and a track record of generating consistent earnings.
A vast variety of dividend ETFs are available to investors, each with a different investment philosophy and goal. For instance, certain dividend ETFs may focus on high-yield dividend-paying stocks, while others may focus on dividend-growth firms, which have a history of increasing their dividends over time.
Also read: Top 100 Highest Dividend Yield ETFs
Below are some popular large assets under management with quarterly dividends.
VIG: This ETF tracks the performance of the NASDAQ US Dividend Achievers Select Index, which offers exposure to dividend-paying large-cap companies that exhibit growth characteristics within the U.S. equity market.
VYM: VYM tracks the FTSE High Dividend Yield Index. The index selects high-dividend-paying US companies, excluding REITS, and weights them by market cap.
SCHD: This ETF offers exposure to dividend-paying U.S. equities, making SCHD a potentially useful tool for either enhancing current returns derived from the equity portion of a portfolio or for scaling back risk exposure within a portfolio.
DGRO: DGRO offers a straightforward execution of a dividend growth strategy. The fund aims to find stocks that pay steadily increasing dividends by requiring a 5-year track record of increasing dividends while ensuring that the firms pay out no more than 75% of earnings.
SDY: SDY tracks a yield-weighted index of dividend-paying companies from the S&P 1500 Composite Index that have increased dividends for at least 20 consecutive years.
DVY: This ETF is one of several options available to investors looking to focus equity exposure on dividend-paying stocks. The underlying index screens the equity universe by factors such as dividend per share growth rate, dividend payout percentage rate, and dividend yield.
Also read: Dividend ETF List.
Below are some popular monthly dividend ETFs for April 2024:
XYLD: XYLD tracks an index of S&P 500 stocks and sells one-month, at-the-money call options on up to 100% of each stock. XYLD offers a new twist on an old strategy, writing calls against the S&P 500 stocks in its basket to earn the premium.
SPYI: SPYI aims for tax-efficient and high monthly income by actively investing in stocks and options on the S&P 500 Index. The fund employs a call-spread approach that uses SPX index option futures contracts. SPYI holds the individual stocks of the S&P 500 Index (SPX) combined with a call spread strategy. The fund seeks to generate high monthly income through dividends from stocks and premiums from SPX call options.
XDTE:The Roundhill S&P 500® 0DTE Covered Call Strategy ETF (“XDTE”) is the first ETF to utilize zero days to expiry (“0DTE”)*** options on the S&P 500®. XDTE seeks to provide overnight exposure to the S&P 500® and generate income each morning by selling out-of-the-money 0DTE calls on the Index. XDTE is an actively-managed ETF.
QDTE: The Roundhill Innovation-100 0DTE Covered Call Strategy ETF (“QDTE”) is the first ETF to utilize zero days to expiry (“0DTE”)*** options on an innovation index (the “Innovation-100 Index” as defined in the Fund Prospectus). QDTE seeks to provide overnight exposure to the Innovation-100 Index and generate income each morning by selling out-of-the-money 0DTE calls on the Index. QDTE is an actively-managed ETF.
QQQI: The Fund seeks to distribute high monthly income generated from investing in the constituents of the Nasdaq-100 Index and implementing a data-driven call option strategy.
QRMI: The Global X Nasdaq 100 Risk Managed Income ETF (QRMI) employs a protective net-credit collar strategy for investors seeking the income characteristics of a covered call fund while mitigating the risks of a major market selloff with a protective put.
JEPY: JEPY, the first put-write ETF on the S&P 500, uses daily options (0DTE) to seek enhanced income for investors. Paid Monthly.
QQQY: QQQY is the first put-write ETF using daily options (0DTE) to seek enhanced income for investors.
FEPI: FEPI aims for steady high income by selling out of the money call options, harnessing big tech’s volatility while capping some of the potential stock gains.
XRMI: The Global X S&P 500 Risk Managed Income ETF (XRMI) employs a protective net-credit collar strategy for investors seeking the income characteristics of a covered call fund while mitigating the risks of a major market selloff with a protective put.
QYLD: The Global X NASDAQ 100 Covered Call ETF (QYLD) follows a “covered call” strategy in which the ETF buys the stocks in the Nasdaq 100 index, then sells corresponding call options to generate a little extra income for investors. QYLD seeks yield from the Nasdaq-100 via an options premium. Historically, investors came to the Nasdaq for growth, not yield.
JEPI: The JPMorgan Equity Premium Income ETF (JEPI) is an actively managed fund that generates income by selling options on U.S. large-cap stocks. The fund invests in S&P 500 stocks that exhibit low volatility and value characteristics and sells options on those stocks to generate additional income.
JEPQ: JEPQ is an actively managed fund of US large-cap companies from the Nasdaq-100 Index, assessed and managed using ESG factors and a proprietary data science-driven investment approach. JEPQ actively and significantly invests in US large-cap stocks comprising its benchmark, the Nasdaq-100 Index, while pursuing lower volatility.
RYLD: RYLD tracks a market-cap-selected and weighted index along with call options for the underlying index. RYLD holds the Russell 2000 index while holding a succession of one-month at-the-money options on the index. The fund follows a “buy-write” (or covered call) strategy on the underlying index.
DIVO: DIVO is an actively managed ETF that provides income by selecting stocks from the S&P 500 Index overlaid with a tactical call-writing strategy. DIVO utilizes an actively managed, income-focused strategy. The fund aims to generate 4-7% annual gross income from two sources: dividends and option premiums.
SVOL: The Simplify Volatility Premium ETF (SVOL) tries to provide investment results before fees and expenses that are about one-fifth to three-tenths (-0.2x to -0.3x) the opposite of the performance of the Cboe Volatility Index (VIX) short-term futures index. It also tries to reduce extreme volatility.
XYLG: XYLG tracks an index of S&P 500 stocks and sells one-month, at-the-money call options on up to 50% of each stock. XYLG attempts to provide the best of two worlds: growth and yield.
QYLG: QYLG tracks an index that holds Nasdaq 100 stocks and sells call options on half the value of those stocks to collect the premiums and allow for growth. QYLG is passively managed to provide both the potential for growth and some yield from the Nasdaq 100 Index. Historically, investors came to the Nasdaq for growth, not yield.
DYLG: DYLG tracks an index of 30 stocks and sells one-month, at-the-money call options on up to 50% of each stock. DYLG attempts to provide the best of two worlds: growth and yield.
DJIA: DJIA tracks an index that uses a covered-call strategy to provide long exposure to the stocks in the Dow Jones Industrial Average and sell at-the-money index call options on each position. DJIA writes covered calls on its portfolio of Dow Jones Industrial Average (the Dow) stocks. Writing covered calls is an options strategy that potentially increases yield but also limits upside potential. The fund writes the near-term options generally each month, and each option’s exercise price is at or above the current price level of the Dow.
TLTW: TLTW uses a fund-of-funds approach to passively track an index that measures the performance of holding shares of the iShares 20+ Year Treasury Bond ETF and writes one-month, out-of-the-money call options against the shares. The fund holds shares of the iShares 20+ Year Treasury Bond ETF (ticker: TLT) and writes (sells) one-month, 102% out-of-the-money covered call options. The objective is to provide additional income in the form of option premiums along with the distributions received from the underlying bond portfolio.
LQDW: LQDW uses a fund-of-funds approach to passively track an index that measures the performance of holding shares of the iShares USD Investment Grade Corporate Bond ETF and writes one-month call options against the shares. LQDW is one of the first bond ETFs to utilize a buy-write strategy. The fund holds shares of the iShares USD Investment Grade Corporate Bond ETF (ticker: LQD), one of the first bond ETFs offered in the US, and writes (sells) one-month covered call options. The objective is to provide additional income in the form of option premiums along with the distributions received from the underlying bond portfolio. The fund will write call options up to the full amount of the shares held in the portfolio.
HYGW: HYGW uses a fund-of-funds approach to passively track an index that measures the performance of holding shares of the iShares High Yield Corporate Bond ETF and writing one-month call options against the shares. The fund holds shares of the iShares High Yield Corporate Bond ETF (ticker: HYG), one of the first bond ETFs offered in the US, and writes (sells) one-month covered call options. The objective is to provide additional income in the form of option premiums along with the distributions received from the underlying bond portfolio.
Also read: Covered Call ETFs
There are also a few weekly dividend ETFs in 2024, but they are not as popular.
WKLY: WKLY tracks a market-cap-weighted index of dividend-paying developed market companies screened for dividend sustainability. It is the first equity ETF to provide weekly income to shareholders.
TGIF: TGIF is the first actively managed USD-denominated fixed income ETF aiming to provide weekly distributions to investors.
YieldMax ETFs seek to generate monthly income by selling or writing call options on single-company stocks or single ETF exposures.
Also read: YieldMax Option Income Strategy ETFs
APLY: APLY uses a synthetic covered call strategy with cash and US Treasury securities as collateral to provide current income and cap gains on Apple stock (AAPL). The actively managed fund uses both standardized exchange-traded and FLEX options.
MSFO: MSFO uses a synthetic covered call strategy with cash and US Treasury securities as collateral to provide current income and cap gains on Microsoft stock (MSFT). The actively managed fund uses both standardized exchange-traded and FLEX options.
GOOY: GOOY uses a synthetic covered call strategy with cash and US Treasury securities as collateral to provide current income and cap gains on Google stock (GOOG). The actively managed fund uses both standardized exchange-traded and FLEX options.
AMZY: Through a synthetic covered call strategy with cash and US Treasury securities as collateral, AMZY aims to provide current income and cap gains on Amazon stock (AMZN). The actively managed fund uses both standardized exchange-traded and FLEX options.
NVDY: NVDY uses a synthetic covered call strategy with cash and US Treasury securities as collateral to provide current income and cap gains on Nvidia stock (NVDA). The actively managed fund uses both standardized exchange-traded and FLEX options.
FBY: FBY uses a synthetic covered call strategy with cash and US Treasury securities as collateral to provide current income and cap gains on Meta stock (META). The actively managed fund uses both standardized exchange-traded and FLEX options.
TSLY: TSLY uses a synthetic covered call strategy with cash and US Treasury securities as collateral to provide current income and cap gains on Tesla stock (TSLA). The actively managed fund uses both standardized exchange-traded and FLEX options.
JPMO: JPMO uses a synthetic covered call strategy with cash and US Treasury securities as collateral to provide current income and cap gains on JP Morgan stock (JPM). The actively managed fund uses both standardized exchange-traded and FLEX options.
XOMO: XOMO uses a synthetic covered call strategy with cash and US Treasury securities as collateral to provide current income and cap gains on Exxon Mobile stock (XOM). The actively managed fund uses both standardized exchange-traded and FLEX options.
YMAX: The Fund is a “fund of funds,” meaning that it will primarily invest its assets in certain YieldMax ETFs. The Fund’s portfolio will be reallocated on a monthly basis so that each YieldMax ETF held in the Fund’s portfolio, including any eligible new YieldMax ETF that is added to the portfolio, is equally weighted.
YMAG: The Fund is a “fund of funds,” meaning that it will primarily invest its assets in seven YieldMax ETFs. The Fund’s name refers to its strategy of gaining exposure to the common stocks of seven companies, which together are commonly referred to as the “Magnificent 7”. Magnificent 7 Companies: Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc. (GOOGL), Meta Platforms, Inc. (FBY), Microsoft Corporation (MSFT), NVIDIA Corporation (NVDA) and Tesla, Inc. (TSLA).
TRES: The Fund will primarily invest in options strategies involving Treasury ETFs, allocating up to 50% of its net assets to long option positions, debit spreads, calendar spreads, and diagonal spreads (each, based on the net premium). The Fund will also allocate up to 80% of its net assets to credit spreads (using Treasury securities as collateral).
MAXI: The Simplify Bitcoin Strategy PLUS Income ETF (MAXI) seeks capital gains and income by providing investors with exposure to bitcoin while simultaneously generating income by selling short-dated put and/or call spreads on a variety of equity and fixed income instruments, which may include indices, ETFs, or individual securities.
What is the ex-dividend date?
The ex-dividend date marks the time when ownership of shares changes hands and the new owner forfeits the right to the ensuing dividend payment. In other words, an investor is eligible to receive a future dividend payment if they buy shares of a corporation before the ex-dividend date. They won’t get the dividend payout, though, if they buy shares on or after the ex-dividend date. The record date, or the day on which a firm determines which shareholders are qualified to receive the dividend, is usually two business days before the ex-dividend date.
Also read: Record Date vs. Ex-Dividend Date: What’s the Difference?
What is DRIP?
Dividend Reinvestment Plan, or DRIP Some businesses have a scheme that enables investors to automatically reinvest their dividends into the purchase of new shares of the company’s stock. The dividend payment is automatically utilized to purchase more shares of the company’s stock, frequently at a discount, as opposed to being given cash. This may enable investors to gradually increase the size of their portfolio and potentially boost long-term returns. Investors can reinvest their dividends easily and without paying additional trading costs by using DRIPs. It’s crucial to keep in mind that not all businesses provide DRIPs, and some can impose fees or place limitations on participation.
What is a dividend trap?
A dividend trap occurs when an investor purchases a stock based solely on its high dividend yield without considering the underlying financial health of the company. In other words, the stock price significantly declines, wiping out any dividend gains and luring the investor in with the promise of high dividend payments.
Some companies offer high dividend yields to attract investors, but this may not necessarily mean that the company is financially healthy or has a sustainable dividend policy.
Investors who fall into the dividend trap may also be at risk of missing out on potentially more profitable investment opportunities. By focusing solely on dividend payments, they may overlook companies with better growth potential and miss out on potential capital gains.
To avoid falling into a dividend trap, investors should carefully analyze a company’s financial health, earnings potential, and dividend policy before investing. They should also consider factors such as industry trends, competition, and economic conditions to assess the company’s growth potential. By taking a holistic approach to investing and looking beyond dividend yields, investors can make more informed decisions and avoid costly traps.
Also read: AT&T: A Dividend Value Trap.
One concern is that AT&T’s debt levels have increased significantly in recent years due to its acquisition of Time Warner and investments in its 5G network. As of 2024, the company had over $160 billion in debt, which could put pressure on its ability to pay dividends in the long term.
In addition, AT&T’s revenue growth has been relatively flat in recent years, and the company faces increasing competition from other telecommunications companies. Some analysts also argue that AT&T has not effectively leveraged its assets to capitalize on emerging trends such as streaming video and digital advertising.
These factors have led some investors and analysts to question whether AT&T’s dividend policy is sustainable in the long term.
Investors who are considering investing in AT&T based on its high dividend yield should carefully analyze the company’s financial health, debt levels, and growth potential before making a decision. They should also consider the risks associated with investing in a company with a potentially unsustainable dividend policy.
What is a dividend payout ratio?
The payout ratio is a financial ratio that measures the proportion of earnings paid out as dividends to shareholders. You can calculate it by dividing the total dividends the company has paid out by its net income.
Also read:Dividend Payout Ratio Definition, Formula, and Calculation
Also read: Dividend ETF Overview.
Furthermore, factors like fees, liquidity, and diversity should be taken into account. One must look at assets under management, holdings, and their long-term performance against the S&P 500 ETFs SPY and VOO.
One such benefit is tax efficiency. Because dividends are considered taxable income, investing in individual dividend-paying stocks can result in a complex tax situation.
Another benefit of dividend ETFs is their flexibility. This makes dividend ETFs a convenient option for investors who want to adjust their investment positions quickly and easily.
Dividend ETFs can also provide investors with exposure to international markets. This can be particularly valuable for investors who want to diversify their portfolios beyond domestic stocks and bonds.
It’s worth noting that there are some potential drawbacks to investing in dividend ETFs as well. One potential downside is that dividend-paying stocks may underperform during periods of market growth. This is because companies may choose to reinvest profits back into the business rather than pay out dividends.
As with any investment, it’s important to carefully consider your goals and risk tolerance before investing in dividend ETFs.
In conclusion, dividend ETFs can be a valuable addition to a well-diversified investment strategy. They give investors access to a large range of dividend-paying stocks, predictable income, and the possibility of long-term growth.