Perhaps not realized by some investors, U.S. companies’ preferred method of returning capital to shareholders for the bulk of this century has been share repurchases, not dividends.
Buybacks are flexible and more tax efficient than cash payouts. Plus, there’s the added benefit of boosting earnings per share for companies that materially shrink their share counts. All of that sounds good, and it is, but none of those facts should be seen as slights against dividend stocks. In fact, U.S. companies, broadly speaking, remain very much committed to dividends.
These dividend ETFs, including a cheap Vanguard fund, are suitable for committed long-term investors. Image source: Getty Images.
Earlier this year, S&P Dow Jones Indices issued a report forecasting U.S. dividend growth of 6.5% in 2026, with the aggregate tally reaching $827 billion. The index provider adds that it expects all 24 sectors it tracks to notch positive payout growth this year. To be sure, those are positive indicators.
Investors wondering how to invest in dividend stocks broadly can find an array of exchange-traded funds (ETFs) that fit the bill. Market participants seeking to fill out the domestic dividend slices of their portfolios may want to examine any or all of the following trio of ETFs.
The big kahuna
In terms of size, the Vanguard Dividend Appreciation ETF (VIG +0.75%) is the king of dividends, with $111 billion in assets under management, giving it a healthy advantage over the second-place fund. One reason this Vanguard fund is so popular with equity income investors is its emphasis on consistency and dividend growth.
The fund tracks the S&P U.S. Dividend Growers Index, which requires member companies to have increased payouts for at least 10 consecutive years. That’s a high entry bar. The Vanguard fund holds 331 stocks, nearly 49% of which hail from the technology and financial services sectors. Those groups sport low yields but have significantly accelerated dividend growth in recent years.
For long-term investors, there’s undeniable merit in embracing dividend growth, at least in part of their portfolios, and this ETF proves it. During the decade ended June 30, just four dividend ETFs outperformed this Vanguard fund, and this fund’s advantage over the No. 6 fund on the list is sizable.
Vanguard Dividend Appreciation ETF
Today’s Change
(0.75%) $1.77
Current Price
$239.13
Key Data Points
AUM
$130B
Dividend Yield
1.50%
Expense Ratio
0.04%
Top Holdings
AVGO
4.55%
AAPL
4.22%
LLY
4.15%
Past performance isn’t a promise of future returns, but investors in this ETF can bank on steady dividend growth and a low cost of ownership. This fund charges just 0.04% per year, or $4 on a $10,000 stake. That’s far below the average of 0.72% on competing strategies.
Yield here for yield
Some income investors prefer growth, while others prefer yield. Market participants can have their cake and eat it, too, potentially pairing the aforementioned Vanguard fund with the iShares Select Dividend ETF (DVY +1.78%). Its 3.4% dividend yield is above average. That’s enough to say that many of the iShares ETF’s 99 holdings qualify as high-yield dividend stocks.
This ETF, which turns 23 years old in November, tracks the Dow Jones U.S. Select Dividend Index. Investors need not be index nerds to consider this ETF, but how the index functions is of interest to the buy-and-hold crowd. Dividend consistency and payout ratios are among the screens used by the index, indicating it’s possible to find quality and yield under one umbrella.
Financial stocks, which are resurgent on the dividend-growth front, account for 26% of this ETF’s weight, while utilities check in at 24%. Said another way, investors should expect a significant helping of defensive and value stocks in this iShares fund, with scant exposure to growth stocks.
iShares Trust – iShares Select Dividend ETF
Today’s Change
(1.78%) $2.85
Current Price
$162.47
Key Data Points
AUM
$23B
Dividend Yield
3.24%
Expense Ratio
0.38%
Top Holdings
TROW
2.27%
MO
2.17%
PRU
2.10%
This fund’s annual expense ratio is 0.38%, which places it in the lowest quintile of its category.
A dedicated approach
Some of the most experienced income investors may have thought the day would never come when tech stocks would be credible inclusions in the dividend conversation, but that day has arrived. The First Trust NASDAQ Technology Dividend Index Fund (TDIV 0.98%) is the original ETF dedicated to tech dividends.
This $4.3 billion ETF, which turns 14 next month, features some exposure to the communication services sector, with names such as AT&T and Verizon bolstering the fund’s dividend credentials. Because many tech dividend payers are fairly new to the scene, the Nasdaq Technology Dividend™ Index, which this ETF tracks, doesn’t emphasize the length of dividend-increase streaks as do some traditional dividend ETFs.
Rather, requirements for admission to this ETF’s index include a minimum yield of 0.5%, a steadily paid dividend during the past year, and no dividend cuts during that period. The yield requirement explains why the likes of Meta Platforms and Nvidia aren’t yet among this ETF’s holdings.
Tech’s sector-leading margins make the group a potent source of free-cash-flow growth, which in turn supports an attractive long-term dividend growth trajectory. That suggests the First Trust is pertinent to buy-and-hold investors who want to be compensated for focusing on tech stocks. If there’s a strike against this ETF, it’s an annual expense ratio of 0.50%, which is toward the high end among dividend ETFs.