Reviewed by Aug 26, 2020| Updated on
Dividend ETFs are a type of exchange-traded funds (ETFs) that are intended to invest in a group of stocks that have the potential to offer high dividends.
Dividend ETFs exist so that investors are given an opportunity to enjoy excellent gains through high yields. These ETFs invest in stocks that are known to offer high dividends. Also, they invest in preferred stocks and real estate investment trusts (REITs). The portfolio of dividend ETFs may contain only US domestic stocks and also global dividend ETFs. These may have a wide range of horizon to focus. Most indices that are a part of these ETFs invest in stocks that are renowned for providing above-market dividend yield and much higher-than-ordinary liquidity levels. However, these will be different, as per the ETF fund manager's approach in his or her investment strategies.
Understanding Dividend ETF
Dividend ETFs are typically managed passively. This means that these ETFs track a particular index. However, the underlying index is tracked quantitatively to cover those firms that have a track record of providing regular dividends. Dividend ETFs also invest in bluechip companies that are perceived to be less risky. Investors must look at the track record of the stocks involved in the underlying index.
The expense ratio of dividend ETFs must be less than or equal to the lowest expensive or no-load mutual funds. No-load mutual funds are those that can be bought and redeemed at no commission and sales charge if the investor stays invested for a certain timeframe. Dividend ETFs are apt for those investors that are risk-averse and looking at having a regular income.
Typically, dividend ETFs provide investors with an option to diversify an index fund. They can also sell short, purchase, and trade on margin as a solitary share. This is because ETFs do not have requirements of a minimum deposit.