Looking for the best dividend stocks and ETFs? It’s a smart thing to search. With dividend stocks and ETFs, not only will you receive that regular quarterly payout (via the dividend), you could also earn value with the growth of the stock!
Want to learn more about the best ETFs? There’s a ton to digest here, but with all this information, I’m certain you’ll find what you were looking for!
This post was written by our staff writer, Lindsey Smith.
The Best Dividend Stocks and ETFs
There are two solid ways to earn dividends.
- First, you can do it with individuals stocks.
- Second, one of my most favorite ways, you can earn dividends with dividend ETFs (ie. a fund with a bunch of stocks in it – like an index fund).
We’ll first share the list of our favorite dividend stocks. Then, we’ll go in depth into the world of dividend ETFs – what they are, how they work, and how much they earn.
What stocks have growth potential AND pay out a solid dividend? After much searching, here’s our opinion of the best dividend stocks for 2022.
1) Exxon Mobil (XON)
Exxon Mobil is the largest U.S. oil maker. Stock prices are not yet where they were pre-Covid, so there is likely still growth potential here.
2) Verizon (VZ)
Verizon Communications is one of the largest U.S. telecom companies. Some may say that the telecommunications sector is saturated, but it’s still such an important part of our lives today. I don’t believe this one is going away any time soon. Don’t believe me? Then ask Warren Buffett – he bought shares of Verizon in 2020.
3) Innovative Industrial Properties (IIPR)
IIPR is a cannabis-focused REIT. It acquires facilities that cultivate and process medical marijuana in legalized U.S. states. Then they lease out the space and manage the properties. The average term of their current lease holdings? 16.6 years. Sooo, as long as marijuana stays legal and in demand, they’re set for quite some time.
4) Chevron (CVX)
Another oil company here, but they’ve recently committed to investing $10 billion in “green” initiatives through 2028. If the entire nation moves away from gas, this company will be ready.
5) Bristol Myers Squibb (BMY)
Bristol Myers Squibb is a large drug-maker. Their price target is 32% higher than the current share price, which means there are potentially some big things coming from this company in the upcoming years. So, not only could you get some growth out of this stock, you’ll see some solid dividends as well at 3.3%.
6) Enterprise Products Partners (EPD)
Enterprise Products Partners is one of the cheapest oil stocks at roughly $22, which makes it easier to purchase. According to Motley Fool, this company has a couple of projects near completion that should boost growth. And, it of course has a tremendous dividend of 8.2%!
Annaly Capital Management is a mortgage real estate investment trust (REIT). This company aims to borrow money at low short-term lending rates to purchase assets with higher long-term yields. The dividend is insane at 10.4%, so I wouldn’t expect to much value growth out of the stock, but still…that’s just too insane a dividend to ignore!
8) Simon Property Group Inc. (SPG)
Simon Property Group is another well-known real estate investment trust (REIT). They own and manage a portfolio of properties – mainly shopping malls and outlet centers. The analysts currently label this stock a “buy”.
9) Kraft Heinz Co. (KHC)
Kraft Heinz is one of the world’s oldest and largest consumer packaged food and beverage companies. They have had a few difficult years, but they have plans to improve their balance sheet and get back on top again. If they do, the value of their stock could begin to soar again, and the dividend will just be a bonus!
What About the Best Dividend ETFs?
We covered the best dividend stocks above. What about dividend ETFs? Are dividend ETFs better than stocks?
In my opinion, they certainly can be! They’re more diversified, the transaction costs are often cheaper, and they’ll still pay out a healthy dividend!
The Low Risk High Dividend ETF
Dividend ETFs are one of the best investments for stability and are favored by income-seeking investors. They have the most potential of any investment vehicle to garner steady returns, which have made them popular, especially for those hoping to live off dividend income.
We’ve distilled the many choices and found what we consider the best low risk high dividend ETFs, what they are, and why you should probably give dividend ETFs a try.
Keep reading to find out more!
What is a Dividend ETF?
We’ve been referring to the dividend ETF throughout this entire article so far…but what is it really? What is a dividend ETF?
An ETF is an exchange-traded fund, a type of index fund that trades like a stock. A dividend ETF is an ETF that focuses on holding shares of companies that specifically offer high-paying dividends. These companies typically pay out dividends to their shareholders every quarter, twice a year, or yearly.
A dividend ETF is just a specific type of ETF that features shares of companies known to pay out dividends to shareholders.
We outlined quite a few great dividend stocks early in this article, but is that the best route to go? Or are dividend ETFs better than stocks?
I eluded to this a bit early in the post, but I love the idea of investing with dividend ETFs. In total, you may receive a lower dividend than one particular stock dividend, but it’s a safer investment because by putting your money into an ETF, you’re automatically diversifying your investment across many different companies. Not just one.
So, perhaps a slightly lower return, but at a much lower risk.
Not convinced? Or not clear enough for you?
Let’s say you invest all your money into two high-yield dividend stocks…and then one goes bankrupt. Your investment is immediately cut in half.
But, let’s say you invest in just one ETF…which has 2,000 companies. Let’s say one of them goes bankrupt. Your investment hardly notices. THAT’s the difference in risk, and it’s why I do venture out and say that the dividend ETFs are better than individual dividend stocks.
How Do I Choose a Dividend ETF?
With the rise in popularity of ETFs, due to their simple buy-in and low expense ratios, the choice is really yours when it comes to which dividend ETF to buy.
When choosing a dividend ETF, consider your goals:
- Are you looking for long-term holding or short?
- Do you want to live off the income or is it going toward something specific?
When picking an ETF to invest in, below are the questions I would ask and the things I would consider…
If you’re interested in the best dividend ETFs, you’ll likely want to look at ETFs with the highest dividend yield. That is the percentage of the purchase price that was paid out in dividends during the last 12 months.
Dividend Quality and Security of Dividend ETFs
This is where you want to look specifically at the companies inside the fund.
Sometimes you’ll find that the ETF has added risky companies to boost their dividend yield, and you need to decide how much stability inside the fund is important to you.
For your goals, can you handle a more volatile month-to-month payout? Or are you looking for a stable income of dividends?
Dividend Growth and History of Dividend ETFs
Have a look at the dividend payout over time.
- Has it changed?
- Does it go up or down?
Knowing the pattern of growth can be a good way to find the ETFs that work best with your plans.
If you’re looking for a steady income, or you want your dividend to pay your mortgage each month, you might want to find a steady, long-term growth ETF.
If you’re able to afford some volatility, you might look at a newer ETF with high-potential or stable companies within the fund.
Taxation of Dividend ETFs
Dividends can be taxed as either qualified dividends or ordinary income. Qualified dividends are taxed at a much lower rate than ordinary income, so this can be a major consideration for some investments.
For example, Dividend ETFs that hold REITs and business development companies are usually taxed as ordinary income, whereas ETFs that hold covered call options are taxed as qualified dividends.
Of course, if you’re already in a lower tax bracket the amount of extra tax you pay may not be significant, so don’t write off dividends from that type of ETF completely.
You can find out how each ETF is taxed by going to www.etf.com and typing the ticker symbol at the top. It’s always best to speak to a tax expert to get really clear on how much tax you’ll have to pay.
Different Types of Dividend ETFs
There are four main types of Dividend ETFs to check out, some covering specific sectors and others featuring long-term stability funds.
Diversified High Dividend ETFs (ex. the Vanguard High Dividend Yield ETF)
These are the companies that beat the average when it comes to dividend payments. They may have higher risk and more volatility. Examples of this type of fund are the Vanguard High Dividend Yield ETF (VWY) and SPDR S&P Dividend ETF (SPY).
International Diversified High Dividend ETFs
These work the same as above, but invest in international companies. This can be great for diversification, but they can be taxed at a different rate.
An example of this type of ETF: is the Fidelity International High Dividend ETF (FIDI).
Investing in REITs, or real estate investment trusts, is investing in companies that invest in income-producing real estate.
REITs are special in that they have to pay the majority of their income out to shareholders, so they’re a great choice for income-focused investors. Also, it’s a really great way to get some exposure to the real estate market without having to own physical property.
Examples of REIT ETFs: Vanguard Real Estate ETF (VNQ) and Invesco KBW Premium Yield Equity REIT ETF (KBWY).
Dividend Aristocrat ETFs
These are the top of the mountain for income-focused investors.
These ETFs have a history of steady increases over more than a decade. If your goals include stability and consistency in your dividends, these are the ones to go for.
Examples of aristocrat ETFs: ProShares S&P 500 Dividend Aristocrats ETF (NOBL) and SPDR S&P Dividend ETF (SDY)
What Are The Best Dividend ETFs to Buy in 2022?
For the below suggestions of the best dividend ETFs to buy in 2022, we researched which ETF pays the highest dividend, its history, expense ratio, and type.
Check it out!
Always remember though – these are our picks that we would invest in, but your investment choice is entirely up to you!
1) Invesco KBW High Dividend Yield Financial ETF (KBWD)
This ETF tracks the KBW NASDAQ Financial Sector Dividend Yield Index, a group of companies that provide financial products and services.
Basically this ETF gives you exposure to the financial sector, and works best for those who have a higher risk tolerance, due to its mostly small-cap holdings.
It’s annual dividend yield is 6.79%, and it has a positive growth history. The expense ratio is 1.24%.
2) First Trust SMID Cap Rising Dividend Achievers ETF (SDVY)
This dividend ETF fund tracks the NASDAQ U.S. Small Mid Cap Rising Dividend Achievers Index, which tracks 100 small and mid-cap companies all with a history of raising their dividends and who are expected to continue to raise them into the future. So, a great history.
SDVY includes financial, industrial, and consumer discretionary stocks.
The dividend yield is 1.07%, so not super high, but is focused on growth and is expected to continually grow. The expense ratio is 0.60%.
3) VictoryShares US Small Cap High Div Volatility Wtd ETF (CSB)
This ETF tracks the NASDAQ Victory U.S. Small Cap High Dividend 100 Volatility Weighted Index.
With this dividend ETF, you’ll get exposure to some of the highest dividend yielding small-cap stocks in the U.S. Of course, that comes with higher volatility.
This fund includes the financial and industrial sectors, and utilities.
The annual dividend yield is 2.99% and the expense ratio is a great 0.35%.
KBWY holds high yielding REITs and seeks to track the performance of the KBW NASDAQ Premium Yield Equity REIT Index.
Investing some of your money into a REIT focused ETF is a great way to diversify and gain exposure to income-producing real estate, without the hefty risk of owning property.
This high-yield dividend ETF has a dividend yield of 10.34% and a low expense ratio of only 0.35%.
Though, because of REITs being the asset, these are typically taxed as ordinary income.
5) Global X Russell 2000 Covered Call ETF (RYLD)
This ETF follows a covered call strategy where the fund buys exposure to stocks in the Russell 2000 index and sells corresponding call options on the same index.
This can be a confusing strategy since it uses options and passes the premiums on to investors in the form of dividends.
This fund is nicely diversified, even though it only has one holding: the Vanguard Russell 2000 Fund, which holds a good amount of stocks from many different sectors: healthcare, industrial, real estate, utilities, and more.
The dividend yield is 10.79%, and the expense ratio is 0.60%.
6) Global X NASDAQ 100 Covered Call ETF (QYLD)
Similar to RYLD, this dividend ETF fund uses the call option strategy that passes premiums onto shareholders as dividends.
This fund invests in the tech-heavy NASDAQ 100 Index (QQQ). If you’re looking for some focused exposure to the tech sector in your dividend ETFs, this is a great choice.
It has a great history of stability, and the dividend yield is 11.16%. The expense ratio is 0.60%.
Did you realize that dividend ETFs paid out such a high yield each year? The option above pays out over 11%! It makes you wonder…what ETF pays the highest dividend?
Well, wonder no more!
According to ETF Database, the highest yielding dividend ETF is a fund called, “Columbia Research Enhanced Value ETF (REVS)”. It pays out (get this…are you ready?) a dividend of 23.2%!
As you may have guessed, this is a new fund with limited history.
Invest with caution here as this fund likely won’t be around forever (no investment can guarantee a 20% return for the long-term!).
What is the Best Dividend ETF For the Long Term?
There were a lot of dividend ETF suggestions here in this post. Which should you choose? What is the best dividend ETF for the long term?
Obviously, we can’t tell you exactly what dividend ETF to invest in. What we can do though is give you some guidelines for your dividend ETF investment.
How to choose the best dividend ETFs for you
- First off, always invest in what you understand. If you don’t understand what it is that you’re putting your money into, don’t do it. You’ll likely lose.
- Don’t get greedy. Sure, a 23% return sounds great…until it loses you money (which will happen at some point by the way). A great target for solid consistent dividend returns for the long-term is somewhere between 3% and 6%. If you get up into the dividends that earn 10% or more, you really have to start watching your investments as they likely won’t stay up in that 10%+ range forever.
- Invest into what’s important for you. If you’re against smoking and gambling, don’t invest your money into those funds. Instead, invest in something that aligns with your beliefs. You’ll feel great when you invest, and you’ll also feel great if you reap returns from those investments.
And, regardless of what you invest in, be sure to always pay attention. There aren’t any investments out there where you can just stop watching them for decades. Watch your money and be sure that it’s always working for you, not against you.
The Best Dividend Stocks and ETFs in 2022 – What Do You Think?
Well there you have it! The best dividend stocks and ETFs in 2022!
Here’s the full list of the best dividend stocks and ETFs:
- Exxon Mobil (XON) – Dividend: 6.1%
- Verizon (VZ) – Dividend: 4.7%
- Innovative Industrial Properties (IIPR) – Dividend: 2.5%
- Chevron (CVX) – Dividend: 5.4%
- Bristol Myers Squibb (BMY) – Dividend: 3.3%
- Enterprise Products Partners (EPD) – Dividend: 8.2%
- Annaly Capital Management (NLY) – Dividend: 10.4%
- Simon Property Group Inc. (SPG) – Dividend: 6.3%
- Kraft Heinz Co. (KHC) – Dividend: 4.4%
- Invesco KBW High Dividend Yield Financial ETF (KBWD) – Dividend: 6.79%
- First Trust SMID Cap Rising Dividend Achievers ETF (SDVY) – Dividend: 1.07%
- VictoryShares US Small Cap High Div Volatility Wtd ETF (CSB) – Dividend: 2.99%
- Invesco Premium Yield Equity REIT ETF (KBWY) – Dividend: 10.34%
- Global X Russell 2000 Covered Call ETF (RYLD) – Dividend: 10.79%
- Global X NASDAQ 100 Covered Call ETF (QYLD) – Dividend: 11.16%
Boom! That was quite a crash course in the best dividend stocks and ETFs! Which picks were your favorite?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.