I've been investing for decades, and I've grown increasingly interested in dividend-paying stocks over that period. Like many, I used to overlook lots of dividend payers in favor of more exciting growth stocks, but I now appreciate just how powerful dividend payers can be. (Also, dividend stocks can be growth stocks, too!)
An especially easy and effective way to invest in dividend payers is via exchange-traded funds (ETFs), which are funds that trade like stocks. Here's a look at some promising ones, as well as a review of how powerful dividends are.
Image source: Getty Images.
What's so great about dividends?
For starters, dividend-paying stocks tend to be sturdier than ones that don't offer payouts because a company generally has to get to a certain size, with fairly dependable income, before it will initiate and commit to a regular dividend.
Once a company pays a regular dividend, it will want to keep doing so, as dividend cuts or suspensions are signs of trouble. Thus, when the economy heads south, as it inevitably does from time to time, healthy dividend stocks will keep paying.
So, you may not be seeing a lot of growth in your portfolio for a while, but it will still be receiving infusions of cash from your dividends -- cash that you might reinvest in more stock.
Meanwhile, if you're still thinking that non-dividend stocks are faster growers, think again. Check out the numbers below:
|
Dividend-Paying Status |
Average Annual Total Return, 1973-2024 |
|---|---|
|
Dividend growers and initiators |
10.24% |
|
Dividend payers |
9.20% |
|
No change in dividend policy |
6.75% |
|
Non-payers |
4.31% |
|
Dividend shrinkers and eliminators |
(0.89%) |
|
Equal-weighted S&P 500 index |
7.65% |
Data source: Ned Davis Research and Hartford Funds.
As the table suggests, it's especially powerful to invest in companies that are regularly increasing their payouts, as many do.
How to become a millionaire over time
Before getting to some dividend ETFs you might consider, take a moment to see how money grows over time. If you have enough time, and you're saving and investing meaningful sums, you can very likely become a millionaire -- if not a multimillionaire. Check it out:
|
Growing at 8% for |
$7,500 Invested Annually |
$15,000 Invested Annually |
|---|---|---|
|
5 years |
$47,519 |
$95,039 |
|
10 years |
$117,341 |
$234,682 |
|
15 years |
$219,932 |
$439,864 |
|
20 years |
$370,672 |
$741,344 |
|
25 years |
$592,158 |
$1,184,316 |
|
30 years |
$917,594 |
$1,835,188 |
|
35 years |
$1,395,766 |
$2,791,532 |
|
40 years |
$2,098,358 |
$4,196,716 |
Source: Calculations by author.
I used an 8% growth rate because the S&P 500 has averaged annual returns close to 10% (ignoring inflation) over long periods, and I wanted to be a bit conservative.
Speaking of the S&P 500, you can do quite well in your investing life just sticking with a simple, low-fee index fund such as one that tracks the S&P 500. It, too, is a dividend payer, though its dividend yield isn't very big (1.3% recently).
An S&P 500 index fund such as Vanguard S&P 500 ETF (VOO +1.23%) will let you enjoy dividend payouts (and ones that will grow over time) while you also benefit from the growth of 500 of America's biggest companies, many of which pay dividends. So do consider this fund, which Warren Buffett loves.
Let these dividend ETFs help you become a millionaire
But here are some dividend-focused ETFs to consider, too. I'll share their yields and recent performance below, and compare their numbers to an S&P 500 index fund:
|
ETF |
Recent Yield |
5-Year Average Annual Return |
10-Year Average Annual Return |
|---|---|---|---|
|
JPMorgan Equity Premium Income ETF (JEPI) |
8.01% |
11.17% |
N/A |
|
iShares Preferred & Income Securities ETF (PFF) |
6.68% |
2.49% |
3.13% |
|
Schwab U.S. Dividend Equity ETF (SCHD) |
3.97% |
11.31% |
11.00% |
|
Fidelity High Dividend ETF |
3.02% |
15.59% |
N/A |
|
Vanguard High Dividend Yield ETF |
2.86% |
12.28% |
10.04% |
|
SPDR S&P Dividend ETF |
2.59% |
9.51% |
9.37% |
|
iShares U.S. Real Estate ETF |
2.55% |
4.84% |
6.01% |
|
iShares Core Dividend Growth ETF |
2.23% |
11.91% |
11.73% |
|
Vanguard Dividend Appreciation ETF |
1.79% |
12.53% |
11.80% |
|
First Trust Rising Dividend Achievers ETF |
1.67% |
15.20% |
12.74% |
|
Vanguard S&P 500 ETF |
1.23% |
15.05% |
13.15% |
Source: Yahoo! Finance and Morningstar.com, as of June 10, 2025.
I included a bunch so that you might compare. Some aim for and offer higher yields, while others had higher returns over the past decade. Depending on your brokerage, or even what your 401(k) plan offers, funds in some families (such as Vanguard, Schwab, or Fidelity) might be easier and cheaper to invest in.
Before you leap into shares of the JPMorgan Equity Premium Income ETF, understand that it's not an ordinary stock ETF. It holds more than 80% of its assets in U.S. stocks and devotes much of the rest to options. It's only a few years old, but its high yield has drawn plenty of interest. Read up on it if you're intrigued.
Park $7,500, or any other sum, in one or more of these dividend-focused ETFs, and you're likely to build respectable wealth over many years.
