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.
That being said, dividend stocks have had a tough 2023: The Morningstar Dividend Yield Focus Index (a collection of quality stocks with stable dividends) is underperforming the broad-based Morningstar US Market Index by more than 20 full percentage points. Why? Because the types of stocks that pay dividends―most notably, energy, healthcare, and financial services stocks that land in the value category—have struggled.
Morningstar chief U.S. market strategist David Sekera thinks dividend-paying stocks are better positioned entering 2024 than last year. “High dividend-paying sectors such as communications, utilities, and real estate are trading at levels well below our fair value estimates,” he says. “In addition, our U.S. economics team forecasts interest rates will decline over the course of 2024, which will provide a tailwind for dividend stocks, which tend to be more interest-rate-sensitive.”
Investors interested in getting exposure to dividend stocks through a managed product can choose from among many dividend exchange-traded funds and mutual funds.
19 Best Dividend ETFs and Mutual Funds for 2024
These mutual funds and ETFs focus on U.S. dividend stocks and had at least one share class that earned top Morningstar Medalist Ratings of Silver or Gold with 100% analyst coverage as of Dec. 4, 2023.
- BlackRock Equity Dividend MADVX
- Capital Group Dividend Value ETF CGDV
- ClearBridge Dividend Strategy LCBOX
- Columbia Dividend Income CDIRX
- Fidelity High Dividend ETF FDVV
- FlexShares Quality Dividend ETF QDF
- Franklin U.S. Low Volatility High Dividend ETF LVHD
- Schwab U.S. Dividend Equity ETF SCHD
- SPDR S&P Dividend ETF SDY
- T. Rowe Price Dividend Growth PRDGX
- T. Rowe Price Dividend Growth ETF TDVG
- Vanguard Dividend Appreciation ETF VIG
- Vanguard Dividend Appreciation Index VDADX
- Vanguard Dividend Growth VDIGX
- Vanguard High Dividend Yield ETF VYM
- Vanguard High Dividend Yield Index VHYAX
- WisdomTree U.S. LargeCap Dividend ETF DLN
- WisdomTree U.S. MidCap Dividend ETF DON
- WisdomTree U.S. SmallCap Dividend ETF DES
High-Dividend Stocks vs. Dividend-Growth Stocks
Most funds on our list of the best dividend ETFs and mutual funds 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 names on our list of the best dividend ETFs and mutual funds 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.
When researching dividend stock mutual funds and ETFs, be sure to understand which approach the fund takes. You can find this information in a Morningstar fund or ETF report on Morningstar.com. Look for Morningstar’s Analysis under the Fund Analysis tab.
Do Investors Need Dividend ETFs or Mutual 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 (Microsoft MSFT, Apple AAPL, and UnitedHealth UNH) are also among the top 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. However, investors should be aware of what adding a dividend stock fund may do to the complexion of their current portfolio mix.
How to Find More of the Best Dividend ETFs and Mutual Funds for the Long Term
Given their high Morningstar Medalist 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 Medalist Rating.
- Want to find a complete list of dividend stock ETFs or mutual funds available today, not just those with our highest Medalist 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.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.