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10 Best Dividend Index Funds | All You Need to Know

Dividend index funds are mutual or exchange-traded funds (ETFs) comprising multiple stocks that attempt to track an index.

Dividend index funds are suitable for every type of investment. That means not every investor will find them appealing and beneficial.

But for getting a steady income flow from the investments you made, Dividend index funds are sure plugs.

This article highlights more about what Dividend index funds entail. It also curated a comprehensive list of the 10 best dividend index funds worth investing in in 2023. Read on!

Table of contents

What are Index Funds?

Index funds are mutual funds or exchange-traded funds (ETFs) that invest in assets that correspond to a certain index, such as the S&P 500 or the Barclays Capital U.S. Aggregate Float Adjusted Bond Index.

Index funds are a low-cost technique for investing in specific markets or industries. The vast majority of index funds distribute dividends to investors.

The Investment Company Act of 1940 governs index mutual funds. As investment businesses, these funds are mandated to pay out as dividends any interest or dividends received by a fund’s portfolio, fewer expenditures.

The vast majority of index funds will own some dividend or interest-paying securities. These funds will pay a dividend to investors at some point.

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What is Dividend?

A dividend is when a corporation distributes a portion of its profits to its shareholders rather than reinvesting the profits or keeping the cash.

These can occur on a regular, planned basis or on an ad hoc basis based on the company’s leadership’s decisions.

Dividend payments will be made to stockholders based on the size of the dividend per share and the number of shares they own.

Dividend payouts are frequently different depending on the type of stock you own.

Class A equities may be paid dividends on a set schedule, if at all, whereas Class C stocks may be paid a fixed rate of return.

What Exactly Is a Dividend Index Fund?

A dividend index fund is an index fund that is formed around firms chosen for their dividend payment rates. This could be a mutual fund or an exchange-traded fund (ETF).

What then are Dividend Index Funds

A dividend index fund is a fund that is indexed to stocks based on dividend payments. A fund like this will typically be organized around dividend yields, indexing itself to assets that produce a particular percentage of return annually.

Other funds may organize themselves according to the payout rate, looking for assets that pay out dividends on a quarterly or monthly basis.

It is critical to distinguish between a dividend index fund and a fund that pays dividends.

When a mutual fund or ETF earns a profit on its assets, it is typical for the fund to pay dividends to its owners. This is not done by every fund, but a large number of them do it.

What best way Can I invest in dividend index funds?

A decent starting point is to calculate your total asset allocation, followed by determining how much money you have to invest in stocks and/or equity index funds.

After you’ve completed the preliminary steps, you can visit any of the big online discount brokerages, such as Vanguard, Fidelity, or Charles Schwab, which all offer free (or very low-cost) ETF trading.

Here are the three most important factors to consider when choosing dividend index funds to invest in:

The Dividend yield. This has to do with the number of dividends paid out as a percentage of the fund’s price.

Then, the percentage of fund assets spent for operating expenditures is known as the expense ratio and the risk level.

Note there is a trade-off between dividend yield and risk level.

Higher yields are generally associated with higher risk, but higher expense ratios do not always translate to higher dividend yields or lower risk levels.

Furthermore, keep in mind that dividend yield alone is not a perfect predictor of future success.

By limiting your search to firms that pay dividends, you are overlooking a substantial number of companies, such as major tech, that expand through price appreciation.

Make certain that you build a diversified portfolio that includes a diverse population of underlying enterprises with varying capital strategies.

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Best Dividend Index Funds

Here are best 10 Dividends Index funds worth investing in this 2021:

1. The Vanguard Equity Income Fund Investor Shares (VEIPX)

Vanguard’s VEIPX invests mostly in established U.S. corporations that offer reliable dividends. The fund’s holdings are often slow-growth but high-yielding enterprises.

As a result, when compared to other funds, stock price gains may be limited. This fund was founded on March 21, 1988, and provides regular quarterly dividends.

The VEIPX offers a 0.28 percent cost ratio and a 2.24 percent SEC yield. The VEIPX requires a $3,000 minimum commitment.

2. ETF Global X SuperDividend (SDIV)

Consistency is great, but what about Dividend investors who simply want to get paid as much as possible? For them, the Global X “super dividend” fund should suffice.

Rather than focusing on the most mature or dependable income investments, SDIV prioritizes yield in order to achieve a dividend that is over four times that of the average S&P 500 stock.

Of course, that return comes with a higher risk, as the portfolio of equities includes foreign names such as small Chinese companies you’ve probably never heard of before. In fact, less than 30% of the enterprises are currently based in the United States.

However, there is strength in numbers, and the theory is that about 100 of these companies will be sufficiently diversified to avoid excessive volatility if one or two of these smaller dividend stocks encounter a problem.

Just be mindful of the risk and international exposure you’re assuming with this $1 billion fund.

3. Neuberger Berman Equity Income Fund (NBHAX)

The NBHAX seeks to generate dividend income and capital appreciation by investing in dividend-paying equities such as common stocks, utilities, real estate investment trusts (REITs), convertible preferred stock, convertible securities such as bonds, and derivative instruments such as call and put options.

The fund was established on June 9, 2008, with a $1,000 minimum initial investment requirement. It pays dividends with an SEC yield of 1.50 percent and has a 1.06 percent cost ratio.

4. Federated Strategic Value Dividend Fund (SVAAX)

For investors who are dissatisfied with quarterly payments, Federated’s SVAAX offers monthly dividends.

The fund’s investment strategy involves generating income and long-term capital appreciation by focusing on stocks that pay higher dividends than the broader equity market.

The fund also picks out firms with the potential for Dividend growth, and it is principally benchmarked to the Dow Jones U.S. Select Dividend Index.

The SVAAX comprises equities of significant U.S. corporations, with some overseas securities thrown in for good measure.

The SVAAX offers a 1.06 percent cost ratio and a 3.21 percent SEC yield. The fund was established on March 30, 2005, with a $1,500 minimum initial investment requirement.

5. The T. Rowe Price Dividend Growth Fund (PRDGX)

Based on the idea that increasing dividends over time are favorable signs of a company’s financial health and growth, PRDGX seeks to invest mostly in stocks of major corporations, with some mid-sized corporations thrown in for good measure.

The portfolio selects firms with a strong track record of dividend payments or those that are likely to boost their payouts over time.

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The PRDGX is primarily comprised of equities of significant U.S. corporations that pay quarterly dividends.

The PRDGX has a 0.63 percent expense ratio. The fund was established on December 30, 1992, with a $2,500 minimum initial investment requirement.

6. The Vanguard High Dividend Yield Index Admiral Shares (VHYAX)

The Vanguard Dividend Appreciation Index Admiral Shares (VDADX) is an index fund that seeks to mimic the performance of the NASDAQ US Dividend Achievers Select Index.

This one-of-a-kind index is made up of stocks that have increased their dividend payouts over time. VDADX, being an index fund, replicates the constituents of the benchmark stock in the same proportion.

Since its launch on December 19, 2013, this fund has paid out quarterly dividends on a continuous basis.

The VDADX also boasts one of the lowest expense ratios in the market, at 0.08 percent, and an SEC yield of 1.65 percent. The fund has a $3,000 minimum investment.

Vanguard provides this fund as an exchange-traded fund (ETF) with many identical attributes for investors searching for a lower minimum investment requirement. The Vanguard High Dividend Yield ETF is the ETF variant (VYM).

7. WisdomTree U.S. Total Dividend Fund

The WisdomTree U.S. Total Dividend Fund owns 667 U.S. equities that are weighted by predicted dividend yield rather than a company’s market value, as is the typical approach.

This strategy allows you to invest more in firms that pay larger dividends. The fund places the highest emphasis on the information technology and finance sectors.5

This fund is designed to track the Wisdom Tree U.S. Dividend Index. It currently has a 12-month yield of 2.68 percent. As of April 2021, it has an expense ratio of 0.28 percent.

8. iShares Select Dividend ETF (DVY)

Another large-cap dividend ETF, this iShares product has around $18 billion in assets. It does, however, begin the next set of funds on this list by taking a more qualitative approach to its components rather than simply looking for large firms that pay some type of dividend.

Specifically, DVY applies a screening approach that requires, among other things, five years of continuous payouts to ensure dependability.

As a result, another fund with roughly 100 holdings and a yield comparable to a couple of the previous funds has been created.

The holdings are very different here, with Oklahoma-based natural gas business Oneok (OKE) and tobacco behemoth Altria Group (MO) occupying the top spots.

Furthermore, it has a high yield with only 19% of assets in its top ten holdings, demonstrating that it promotes diversity.

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9. The Columbia Dividend Opportunity Fund (INUTX)

Columbia’s INUTX focuses on dividends by investing in equities of companies that have traditionally provided steady and growing dividends. The fund has a diverse portfolio of holdings that includes common stocks, preferred stocks, and derivatives for both domestic and overseas securities of varying sizes.

The INTUX has a 1.05 percent cost ratio and a 1.96 percent SEC yield. The fund was established on August 1, 1988, and it has a $2,000 minimum investment requirement.

10. Vanguard Dividend Growth Fund 

The Vanguard Dividend Growth Fund (VDIGX) invests primarily in a diversified portfolio of large-cap (and occasionally mid-cap) US and global firms that are undervalued relative to the market and have the ability to pay dividends on a regular basis.

The fund study seeks to find firms with high earnings growth potential, resulting in additional income, as well as corporate management’s readiness to enhance dividend payouts.

The VDIGX offers a 0.26 percent cost ratio and a 1.48 percent SEC yield. They established the fund on May 15, 1992, and there is a $3,000 minimum investment requirement.

Reference

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