In 2022, the S&P 500 had one of its worst years in history, falling 19.4% as recession fears rippled through Wall Street. That sharp decline in the broader market makes a strong case for dividend-paying index funds, especially for investors looking to minimize volatility in their portfolios.

Why? Generating enough cash to consistently pay a dividend is typically a sign of a stable, well-managed business, and those qualities often lead to outperformance during periods of economic turmoil. But a dividend-paying index fund goes one step further by spreading invested capital across a group of stocks, which mitigates the risk that comes with buying individual stocks.

Here are two great index funds for dividend investors to buy now.

1. Vanguard High Dividend Yield ETF

The Vanguard High Dividend Yield ETF (VYM 0.24%) tracks the FTSE High Dividend Yield Index, which measures the return of stocks forecasted to have above-average dividend yields. The Vanguard High Dividend Yield ETF includes 440 large-cap value stocks that span 10 of the 11 market sectors, though it is heavily weighted toward recession-resistant sectors like financials, healthcare, and consumer staples. The real estate sector is excluded.

The top 10 holdings are detailed below.

  1. Johnson & Johnson: 3.3%
  2. ExxonMobil: 3.2%
  3. JPMorgan Chase: 2.8%
  4. Procter & Gamble: 2.5%
  5. Chevron: 2.5%
  6. Home Depot: 2.3%
  7. Eli Lilly: 2.2%
  8. Pfizer: 2%
  9. AbbVie: 2%
  10. Merck: 2%

The Vanguard High Dividend Yield ETF pays shareholders a quarterly dividend, and the yield currently sits at 2.98%. Over the past decade, the Vanguard ETF produced a total return of 189%, which is equivalent to 11.1% annually. At that pace, $200 invested on a weekly basis would be worth $175,000 after one decade and $675,000 after two decades.

As a caveat, the Vanguard High Dividend Yield ETF has underperformed the broader S&P 500 over the past decade. The reason for that underperformance is simple: The Vanguard ETF leans heavily toward value stocks, while the S&P 500 represents a blend of value stocks and growth stocks. However, there is a silver lining to its value-heavy composition. The Vanguard ETF has historically been much less volatile than the S&P 500, as evidenced by its five-year beta of 0.85.

Here's the upshot: The Vanguard High Dividend Yield ETF is currently 4% off its high, while the broader S&P 500 is down 14%. That makes this Vanguard ETF a compelling consideration for risk-averse investors looking to gain exposure to the stock market. And with the fund's below-average expense ratio of 0.06%, investors will pay just $6 per year on a $10,000 portfolio.

2. Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF (VIG 0.18%) tracks the performance of the S&P U.S. Dividend Growers index, which measures the return of stocks that have consistently increased their dividend over time. The Vanguard Dividend Appreciation ETF includes 289 large-cap stocks that lean toward value (as opposed to growth). Its constituents span 10 of the 11 market sectors, with the top three sectors being technology, healthcare, and financials.

The top 10 holdings are detailed below.

  1. UnitedHealth Group: 4.1%
  2. Johnson & Johnson: 3.9%
  3. Microsoft: 3.4%
  4. JPMorgan Chase: 3.3%
  5. Proctor & Gamble: 3%
  6. Visa: 2.7%
  7. Home Depot: 2.7%
  8. Mastercard: 2.5%
  9. PepsiCo: 2.1%
  10. Cola-Cola: 2.1%

The Vanguard Dividend Appreciation ETF pays shareholders a quarterly dividend, and the yield currently sits at 1.94%. Over the past decade, the Vanguard ETF produced a total return of 204%, which is equivalent to 11.7% annually. At that pace, $200 invested on a weekly basis would be worth $180,000 after one decade and $724,000 after two decades.

Similar to the Vanguard High Dividend Yield ETF, the Vanguard Dividend Appreciation ETF has underperformed the S&P 500 over the past decade due to its value-heavy composition. But it also comes with the same silver lining. The Vanguard Dividend Appreciation ETF has historically been less volatile than the S&P 500, as evidenced by its five-year beta of 0.85.

Here's the upshot: The Vanguard Dividend Appreciation ETF is currently 9% off its high, while the S&P 500 is down 14%. That makes this Vanguard ETF a compelling option for risk-averse investors looking for some exposure to growth stocks. And with the fund's below-average expense ratio of 0.06%, investors will pay just $6 per year on a $10,000 portfolio.