Top 3 ETFs to Buy with Market-Beating Dividend Yields

Size matters in the world of exchange traded fund (ETF) investing. Generally-speaking, the larger the ETF, the more stability and consistency investors will 

For dividend investors, this added stability is important.

In that light, here are three of the largest and most stable dividend ETFs I think are worth buying for market-beating yields (and returns) over time. For long-term investors looking to create meaningful and sustainable passive income over the long-term (whether it be for retirement, or other goals), these three ETFs are certainly worth a look in my view. 

Without further ado, let’s dive in!

Vanguard Dividend Appreciation ETF (VIG)

Vanguard logo

The largest ETF on this list, with total assets under management of more than $68 billion, is the Vanguard Dividend Appreciation ETF (VIG). Importantly, with an expense ratio of only five basis points (0.05%), it’s also one of the cheapest ETFs to hold for the long-term, relative to other dividend-paying ETFs.

Now, for this low-cost diversification, investors do need to pay a price in terms of the ultimate yield one can expect to receive from investing in VIG. This fund’s overall dividend yield currently sits at around 1.7%. 

Some of that modest yield comes from the fact that many of this ETF’s core holdings have been on a tear of late (so, there’s a capital appreciation piece to factor into one’s analysis). In fact, over the past year, this ETF is up more than 11%, making for a very decent return for investors who have held true to their long-term belief in this name. 

I think it’s also important to reflect on how this ETF is constructed. With a focus on large-cap stocks with a proven track record of raising their dividends for more than a decade, many of the names in this ETF will inevitably have lower yields (as investors increasingly look for stability). But given the overall diversity of sector allocation within VIG, as well as the fund’s solid long-term annualized returns and stable and growing dividend distributions, this is an ETF I think most long-term investors will want to consider. 

iShares Select Dividend ETF (DVY)

ETF visual

Next on this list, we have the iShares Select Dividend ETF (DVY). This is an ETF I’d say is more geared toward investors who may be later on in their investing journey and need a higher up-front yield today. 

DVY carries a current dividend yield of 3.8%, which is notable considering that’s roughly the yield most high-interest savings accounts will provide right now (and many fixed income securities such as bonds as well). The difference is the iShares Select Dividend ETF invests in the Dow Jones U.S. Select Dividend Index, meaning this is a fund that’s much more heavily weighted toward large and mega-cap stocks. So, for investors who think the winners will continue to run (driven by AI and other secular catalysts), this would certainly be the way to express that trade. 

That said, DVY has underperformed the other two names on this list in terms of one-year performance, with this fund up less than 8% at the time of writing. But factoring in the higher dividend yield, investors come pretty close.

This is a dividend ETF conservative investors (or at least those who worry about capital preservation to some degree) may feel more comfortable owning. With volatility creeping down of late, the market appears to be getting a bit complacent with valuations across the board. This would be my preferred way to play dividend stocks, for those who may be a bit more jittery about the near-term direction of the markets moving forward. 

Schwab U.S. Mid-Cap ETF (SCHM)

Charles Schwab office building

One fund I think is worth including on this list, for its focus on dividend stocks, is the Schwab U.S. Mid-Cap ETF (SCHM). This ETF is unique in that it provides investors with exposure to mid-cap stocks. 

Such mid-cap names include the likes of United Airlines, Interactive Brokers, and Robinhood. Thus, while investors may not be getting the “bluest” of blue-chip stocks in such a dividend ETF, there’s also outsized capital appreciation upside during bull markets. In fact, over the past year, SCHM is up roughly 10%. That’s a more than decent return for a fund that focuses on dividend stocks, and even better when investors factor in this ETF’s 1.4% dividend yield. 

I’d say that many of the mid-sized companies in this ETF are relatively overlooked, at least compared to the large-cap names most dividend ETFs weight most heavily. Thus, this is more bespoke fund for those looking for a solid pipeline of companies that are growing faster than the overall market (on average), while also supplementing this growth with consistent passive income. It’s the best of both worlds.