Best Low Cost Dividend ETFs for 2025

• A portfolio of high-quality dividend stocks can generate a stable passive income which increases over time.
• Passive income ETFs (exchange-traded funds) offer a simple way to build a diversified portfolio of stocks, eliminating the need for extensive research into individual companies.
• Experts recommend dividend ETF investing for those with a long-term outlook and a conservative or moderate risk profile.
• The best dividend ETFs fall into two categories. The first category comprises funds focused on generating a high current income, while the second category comprises funds focused on increasing payouts over time.
• In addition to the strategy, the expense ratio must be considered when choosing a fund. A difference of a fraction of a percent over decades can result in a loss of tens of percent of profit.

In this article, we will discuss the factors to consider when choosing a low cost dividend ETF, as well as how to build a portfolio around the best dividend ETF with low expense ratio.

Top Dividend ETFs for 2025 

Picking stocks requires knowledge and time. ETFs offer instant diversification with minimal effort and capital. The table below shows the top dividend ETFs for beginner investors in 2025.

Name (Ticker)	Expense Ratio	Dividend Yield	Assets Under Management
Vanguard Dividend Appreciation ETF (VIG)	0.05%	1.63%	$115.13B
Vanguard High Dividend Yield ETF (VYM)	0.06%	2.5%	$81.29B
Schwab US Dividend Equity ETF (SCHD)	0.06%	3.8%	$69.97B
SPDR S&P Dividend ETF (SDY)	0.35%	2.6%	$20.09B
iShares Select Dividend ETF (DVY)	0.38%	3.43%	$20.73B
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)	0.35%	2.09%	$11.34B
Schwab International Dividend Equity ETF (SCHY)	0.08%	3.62%	$1.44B
Vanguard International Dividend Appreciation Index Fund ETF Shares (VIGI)	0.1%	1.86%	$9.30B
Vanguard International High Dividend Yield Index Fund ETF Shares (VYMI)	0.17%	3.9%	$13.41B

Let’s take a closer look at several low cost dividend ETF.

Vanguard Dividend ETFs

The most popular of the Vanguard dividend ETFs is the Vanguard Dividend Appreciation ETF (VIG). This fund tracks the S&P U.S. Dividend Growers Index. Its focus is on dividend appreciation and it is weighted by market cap.

The index selects companies that have increased their dividends for at least 10 consecutive years. Around 50% of the fund’s assets are invested in the technology and financial sectors. The fund’s three largest holdings are shares in Broadcom (AVGO), Microsoft (MSFT) and JPMorgan Chase (JPM).

The Vanguard High Dividend Yield ETF (VYM) tracks the FTSE High Dividend Yield Index. This index screens US companies with above-average dividend yields and excludes REITs (real estate investment trusts). The resulting portfolio is dominated by the financial and technology sectors, which together account for around 38% of the assets. The top three stocks are Broadcom (AVGO), JPMorgan Chase (JPM) and Exxon Mobil (XOM).

Schwab and Other Low-Cost Options 

The Schwab Dividend ETF tracks the performance of the Dow Jones U.S. Dividend 100 Index. It selects companies that have paid dividends for at least 10 years. It is not mandatory for companies to have consistently increased dividend payouts for at least 10 consecutive years to be included in the SCHD’s net assets. However, one of the requirements is positive dividend growth rates over five years.

SCHD also emphasizes business quality, not just how much a company pays out. The fund’s assets consist of companies that demonstrate good dividend growth rates, a reasonable payout ratio, a high free cash flow-to-total debt ratio, a strong return on assets and earnings growth.

The following three types of low cost dividend ETF have higher expense ratios. However, these figures are still below the median value of 0.56%.

SDY tracks the S&P High Yield Dividend Aristocrats Index. It selects high-yield stocks that have increased their dividends for at least 20 consecutive years. The fund weights its holdings by yield. Consequently, around 50% of the total is invested in sectors such as industrials, consumer defensive and utilities.

DVY enables investment in the Dow Jones Select Dividend Index. This comprises 100 US companies offering the highest-yielding payouts. Over 50% of the assets are accounted for by the Utilities and Financials sectors.

NOBL tracks the S&P 500 Dividend Aristocrats Index. It invests in companies that have increased their dividends for at least 25 consecutive years. Investment diversification away from the technology sector is another potential use of this. Technology companies account for 4.22% of NOBL.

International Dividend ETFs 

Investing in international dividend ETFs allows you to invest in foreign dividend stocks on US exchanges.

SCHY selects stocks with high dividend yields. The fund covers companies from both developed and emerging markets, with the exception of the US. The fund is well diversified across sectors.

VIGI also operates in developed and emerging markets. The fund focuses on quality companies that demonstrate consistent dividend growth. The key sectors are financial services, industry, healthcare, and technology.

VYMI invests in foreign stocks with an above-average forecast dividend yield. It is a well-diversified fund in terms of geography. However, more than 42% of its net assets are in the financial sector.

Understanding Dividend ETF Strategies 

A low cost dividend ETF can focus on one of two dividend strategies. The first strategy involves investing in dividend quality, for example in stocks of dividend aristocrats. The second strategy focuses on investing in high-dividend stocks. When choosing between dividend growth vs high yield, individual investment goals must be considered.

Dividend Growth vs High Yield ETFs 

Dividend growth ETFs invest in companies with a proven history of increasing dividends over several years. Such companies also tend to demonstrate high financial stability and efficient management.

This dividend strategy is designed to provide a gradual increase in passive income alongside capital growth, driven by stock price appreciation. It is aimed at long-term investors who do not require immediate cash income. For instance, it is suitable for investors who are beginning to build their retirement portfolio.

High yield dividend ETFs aim to maximize payouts to shareholders. They invest in companies with above-average dividend yields. However, there are no guarantees of future dividend appreciation or positive total returns. This strategy is ideal for retirees who rely on dividends to cover their current expenses.

Quality and Risk Factors 

Income investors need to pay attention to dividend quality. One parameter for assessing this is the payout ratio. Values above 80% typically suggest insufficiently sustainable dividends and limited growth potential. Other metrics, like the cash flow coverage ratio and earnings growth rate, are also used.

Another important factor to consider when investing in individual stocks is a history of dividend increases. However, while increasing dividends for at least 10 consecutive years is a criterion for inclusion in popular indices, it cannot guarantee future dividend growth.

The simplest method of risk management for income investing is to purchase a low cost dividend ETF focused on high-quality payers.

How to Invest in Dividend ETFs

The following steps are involved in creating a dividend ETF investing strategy:

1. Setting financial goals. First, the investor must decide whether they are seeking an above-average current dividend yield or are interested in the stability and growth of passive income.
2. We determine the parameters of the portfolio allocation. A low cost dividend ETF provides instant diversification in terms of the number of companies in the portfolio. However, they may be biased towards a particular sector. 
3. Specific low cost dividend index funds are selected to be added to the portfolio. This is based on an analysis of asset composition, expense ratios and financial performance.

The Morningstar rating can be used when comparing dividend-paying ETFs. The company evaluates the fund’s historical risk-adjusted performance and assigns it a rating from 1 to 5 stars.

Choosing the Right Dividend ETF for Your Portfolio

A low cost dividend ETF must be researched based on ETF selection criteria.

• Dividend growth vs high dividend yield. Which is preferred depends on the investor’s needs.
• US vs international market. In order to create a balanced portfolio, it is important to consider both types of low cost dividend ETF.
• Active vs passive management. The majority of dividend funds track a specific index passively. In contrast, managers of actively managed funds select securities independently within a given strategy. On average, such funds will have a higher expense ratio.
• Monthly vs quarterly dividends. In the first case, it will be more convenient for investors to match income and expenses. However, they will have fewer options. Typically, bond funds pay out at this frequency.

Actively managed funds often involve investing in stocks and working with options. One example is the JPMorgan Equity Premium Income ETF (JEPI), which is an actively managed low cost dividend ETF that pays monthly dividends. It has an expense ratio of 0.35% and a dividend yield of 3.9%.

Using ETF screeners can help you to quickly select the best low cost dividend funds. The best ones offer filtering by dozens of criteria. These include the expense ratio, dividend growth rate and payment frequency, among others. It is also important to consider the liquidity of the fund. The best ETFs have a spread of 10% or less. This enables you to buy and sell quickly without incurring losses.

How Dividends Work

Before investing in a low cost dividend ETF, it is important to understand how dividends work. Most US companies pay quarterly dividends. Dividends paid monthly, semi-annually or annually are less common.

The dividend payments procedure involves the following key dates:

• declaration date – the day the payment amount is announced;
• ex-dividend date – the day on which buying the share no longer entitles the buyer to the upcoming dividend;
• record date – the day on which shareholders who are entitled to receive the payment are registered. In most cases, this coincides with the ex-dividend date;
• payment date – the day on which the dividend-paying company actually transfers the money.

The dividend yield calculation involves dividing the annual dividend by the current share price. For example, if a company pays $1 for the last quarter and its share price is $100, then the dividend yield is 1%. The expected annual dividend would then be $4, giving a forward dividend yield of 4%.

To calculate the trailing 12-month yield, sum all the payments that the company made during that period to find the annual dividend.

The main factor influencing dividend yield dynamics is stock price. Changes to the annual dividend amount occur more slowly. Consequently, most stocks with unusually high yields tend to be dividend traps.

An ETF that invests in high-yield, dividend-paying companies also carries the risk of reduced payments. This is especially likely during unfavourable economic periods.

The Power of Dividend Compounding 

In the early stages of building wealth, many investors choose dividend reinvestment over receiving cash dividend payments. This allows capital compound growth. According to statistics, dividend reinvestment can radically increase the total return on investment in the S&P 500 index over decades. 

DRIP investing allows you to maximize benefits. It automates the process, saving investors time. Furthermore, many brokers allow investors to purchase fractional shares within such programs.

The chart below illustrates the distinction between the S&P 500 (SPX), which only considers price changes, and the S&P 500 Total Return (SPXTR), which also considers dividend reinvestment (though not trading costs or taxes). The chart covers a 30-year period. 

Over the short term, the effect of dividend reinvestment will be less noticeable. This is especially true during a period of market growth. For example, over the last five years, the difference between the S&P 500 (SPX) and the S&P 500 TR (SPXTR) is only 5%.

Tax Considerations for Dividend ETFs

One way to improve the efficiency of dividend investing is to use a low cost dividend ETF. However, it must be combined with tax optimization to maximize the final return. This requires an understanding of the complexities of dividend taxation.

There are two ways to reduce your tax bill. The first is to receive qualified dividends. These are subject to preferential tax treatment and are paid by companies that pay income tax. In this case, the tax rate will be between 0% and 20%, depending on the investor’s income. To qualify for this benefit, the stock must be held for more than 61 days. The calculation uses a 121-day period beginning 60 days before the ex-date.

Like distributions from individual companies, distributions from a low cost dividend ETF may be taxed at the preferential rate. However, for this to happen, the fund itself must have received qualified dividends, meaning it must have held the stock for long enough without hedging the position.

The second option is to use tax-advantaged accounts. For example, an IRA enables you to defer taxes on dividends. A Roth IRA, meanwhile, exempts investment income from taxation altogether.

When it comes to a low cost dividend ETF that invests in foreign company stocks, it’s important to bear in mind the foreign withholding tax. Investors need to report this on their tax return.

Risks and Considerations 

Dividend ETF risks can be described by 3 key points:

• interest rate risk;
• dividend cuts probability;
• sector concentration risk.

If interest rates rise, buying bonds becomes a more attractive option. Consequently, the value of dividend stocks and shares in a low cost dividend ETF falls. Investors must then sell at a loss in order to purchase an asset with a higher yield. Another option is to maintain a position that provides a less attractive yield.

The amount an ETF distributes depends directly on the payments the fund receives from its net assets. Therefore, funds dominated by companies with high dividend yields are at greater risk of distribution cuts. Conversely, dividend growth ETFs demonstrate greater stability in distributions and lower volatility in share prices.

As demonstrated in previous sections, a low cost dividend ETF may be heavily concentrated in one or two sectors. This depends on the index that the fund tracks. The greater the concentration in any one sector, the greater the risk of dividend cuts and a fall in share prices due to problems in that sector. From this perspective, cyclical sectors, such as the financial sector, are the riskiest.

Building a Dividend ETF Portfolio

There are several approaches to portfolio construction that are based on a low cost dividend ETF. Firstly, a diversification strategy must be developed based on individual investment goals.

Example 1. The investor is a retiree requiring a substantial cash flow. The basis of the asset allocation will therefore be a high dividend ETF with low expense ratio. These are primarily funds that focus on US companies.

To achieve diversification, funds from emerging and developed markets (excluding the US) are used. To reduce volatility, funds focused on dividend growth and funds that invest in bonds are used. One possible proportion is 45/25/15/15.

Example 2. The investor is a young person with a moderate investment strategy who is interested in capital growth and future income. In this case, the basis of the asset allocation will be funds focused on consistent dividends and increasing cash flow from US stocks.

The portfolio is diversified by investing in a low cost dividend ETF that employs a similar strategy to that of the bond funds, as well as in international stocks. To increase the total return of the portfolio, funds that invest in growth stocks may be used. One possible proportion is 40/20/20/20.

Investors also need to decide how to reinvest dividends. This can be done manually or by enrolling in a DRIP program.

The examples provided do not constitute investment recommendations. To build a portfolio tailored to your individual situation, it is useful to consult a financial expert.

The final step in creating an investment strategy is to determine the rebalancing frequency. It is recommended that this is done no more than once a quarter and no less than once a year.

FAQ: Common Questions About Dividend ETFs

The dividend ETF FAQ section contains answers to common questions about investing in low cost dividend ETF. It also serves as beginner guidance for investors interested in generating passive income.

How much money do I need to start investing in dividend ETFs?

Unlike mutual funds, ETFs have no minimum investment requirement. The dividend ETF entry amount depends on the market price of a share, which is typically $20–$200. Many brokers also offer the option of trading fractional shares. This makes beginner investing even more accessible.

How often do dividend ETFs pay dividends?

The most common dividend payment frequency is four times a year. Most of the low cost dividend ETF pay quarterly dividends. However, monthly dividends, as well as semi-annual or annual payments, are also possible. You can find the payment schedule on the fund management company’s website.

What are the best dividend ETFs for beginners?

The best beginner dividend ETFs are low-cost options with simple strategies. Examples include VYM for a high current yield and SCHD and VIG for investing in quality companies with growing dividends.

Should I automatically reinvest dividends or take them as cash?

Dividend reinvestment is necessary to achieve compound growth. It increases both the investor’s number of assets and their portfolio’s cash flow. A DRIP provides automatic reinvestment, saving time.

Can dividend ETFs lose money and what returns should I expect?

Based on historical performance, the realistic expectations for returns on the best low cost dividend ETF is 6–10%. Dividend ETF risks include dividend cuts and a fall in share value due to market volatility. Therefore, short-term results may differ from the expected return.

Bottom Line

Based on the provided review, here is a brief dividend ETF conclusion. This asset is suitable for a variety of investment strategies. It is particularly well-suited to those that involve generating passive income. ETFs that focus on growing their strong businesses also form a good foundation for wealth building.

However, in order to achieve your financial goals, you need to study the key facts about your chosen fund and consider the risks involved in investing. It is important to understand that a high dividend yield does not guarantee total return. Even the best companies and funds can experience a decline in market value.

Article Sources

• Hartford Funds (2023). “The Power of Dividends: Past, Present, and Future.” Research report analyzing dividend contribution to S&P 500 total returns since 1940, demonstrating 34% average contribution to total returns. Hartford Funds Investment Management Company.
• Morningstar, Inc. (2025). “Morningstar Medalist Ratings Methodology for Exchange-Traded Funds.” Morningstar Direct database, covering analyst coverage and rating criteria for Gold and Silver rated dividend ETFs as of July 2025.
• S&P Dow Jones Indices (2024). “S&P U.S. Dividend Growers Index Methodology.” S&P Global, index construction rules requiring 10+ consecutive years of dividend increases, excluding highest-yielding 25% of eligible stocks.
• Vanguard Group (2025). “Dividend Appreciation ETF (VIG) Prospectus.” Investment Company Act of 1940 filing, detailing fund objectives, risks, and performance data for NASDAQ U.S. Dividend Achievers Select Index tracking.
• Internal Revenue Service (2024). “Publication 550: Investment Income and Expenses.” U.S. Department of Treasury, explaining qualified dividend tax rates and ordinary income treatment for dividend distributions from ETFs.
• Schwab Asset Management (2025). “Schwab U.S. Dividend Equity ETF (SCHD) Annual Report.” Securities and Exchange Commission Form N-CSR filing, containing complete portfolio holdings and performance data as of December 2024.
• Dow Jones Indices (2024). “Dow Jones U.S. Dividend 100 Index Methodology.” S&P Global subsidiary methodology documentation, outlining 10-year consecutive dividend payment requirements and quality screening criteria.
• ProShares (2025). “S&P 500 Dividend Aristocrats ETF (NOBL) Fund Facts.” SEC-required fund documentation detailing 25-year consecutive dividend increase requirements for S&P 500 Dividend Aristocrats Index constituents.
• SPDR ETFs (2025). “SPDR S&P Dividend ETF (SDY) Prospectus and Statement of Additional Information.” State Street Global Advisors filing explaining S&P High Yield Dividend Aristocrats Index 20-year dividend growth screening process.