5 Best Dividend Index Funds for Retirement Income

These high-dividend index funds can reward you in retirement

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Waiting for the assets in your retirement portfolio to grow isn't the only way to secure your income in your golden years. Dividends can provide a sustainable income source as well. They're payouts that are issued to the shareholders of a company from its profits.

One way to get exposure to dividend-paying stocks is to invest a portion of your portfolio in a dividend index mutual fund or exchange-traded fund. Those funds pay income in the form of dividends from the companies that issue stock held in the fund. They often distribute dividends to the fund, which are then passed along to the shareholders.

The distributions from a high-yield dividend index fund can vary. They depend on a certain market index, but companies often pay dividends that grow at a rate greater than that of inflation. Having dividend-paying stock can provide a hedge against inflation. You would still receive dividends to help you maintain your spending level, even if the purchasing power of your assets were to decrease.

The best funds offer a high dividend yield and a low expense ratio—a fund management fee that reduces your return as little as possible. One or all five of these index funds can be an appropriate addition to a diversified portfolio.

SDY: SPDR S&P Dividend ETF

The SPDR S&P Dividend ETF is one of the best dividend index funds. It holds stock in 112 companies that are known as the "dividend aristocrats." They have the highest dividend-yielding stocks listed in the S&P Composite 1500 Index. The firms have increased dividends every year for at least 20 years in a row, giving retirees a constant cash flow.

This fund tracks the S&P High Yield Dividend Aristocrats Index. The yield, also known as the "SEC 30-Day Yield," was 2.52% as of April 2021. The expense ratio is 0.35%.

VIG: Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF contains stocks in 182 companies that have increased dividends in each of the last 10 years. The fund tracks the NASDAQ US Dividend Achievers Select Index (formerly the Dividend Achievers Select Index). The yield was 1.61% as of April 29, 2021. A passively managed fund, the ETF offers a low expense ratio of 0.06%, which allows you to keep more of your gains.

DVY: iShares Select Dividend ETF

The iShares Select Dividend ETF owns 100 stocks that have paid dividends in each of the past five years. Stocks are screened by dividend yield, dividend-per-share growth rate, and dividend payout ratio.

This fund tracks the Dow Jones U.S. Select Dividend Index. It had a yield of 3.32% and an expense ratio of 0.39% as of April 2021. An average of 675.55 million shares of the fund traded across all U.S. exchanges over 30 days.

PFF: iShares S&P Preferred and Income Securities ETF

The iShares Preferred and Income Securities ETF is a high-dividend index fund made up of shares of preferred stock. Most of the preferred shares of stock in this fund are issued by financial institutions, such as banks and insurance companies.

The fund tracks the ICE Exchange-Listed Preferred and Hybrid Securities Index. The dividend fund features a yield of about 4.7%. Its expense ratio is 0.46%.

DTD: WisdomTree U.S. Total Dividend Fund

The WisdomTree U.S. Total Dividend Fund owns ​667 U.S. stocks that are weighted by expected dividend yield rather than the traditional approach of weighting stocks by a company's market value. That approach allows you to own more stock in companies that pay higher dividends. The fund tends to give the most weight to the information technology and financial sectors.

This fund tracks the Wisdom Tree U.S. Dividend Index. It offered a 12-month yield of 2.68% and came with an expense ratio of 0.28% as of April 2021.

Role of Dividend Index Funds in Your Portfolio

Investing in these index funds exposes you to dividend-paying stocks that can serve as an income stream during retirement. They can hedge against inflation, but dividends are never guaranteed.

A company can choose to reduce or stop its dividend at any time, such as during an economic downturn, when its profits might fall. The share price will often go down when that happens, which could reduce the value of the assets you invest in the fund.

Dividend-producing investments should be part of a diversified portfolio that you manage through a holistic plan. They should not be used as a sole source of income.

Frequently Asked Questions (FAQs)

How often do you get a dividend from index funds?

ETF companies will detail their dividend schedules on their website. It's best to check directly with ETF companies to see when they plan to issue dividends throughout the year. For example, Vanguard's schedule details estimated dividends for the company's ETFs in 2022. Quarterly distributions are common, but some companies use monthly, semi-annual, or irregular distributions.

What is the best age for owning dividend-paying index funds?

Dividend index funds aren't necessarily better investments at one age over another, but investors from different age groups may have different goals. For example, an older investor in retirement may want a dividend index fund for current income, while a younger investor in their 20s might use it as part of a long-term dividend reinvestment plan (DRIP).

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. State Street Global Advisors. "SPDR S&P Dividend ETF."

  2. Vanguard. "Vanguard Dividend Appreciation ETF (VIG)."

  3. iShares by BlackRock. "iShares Select Dividend ETF."

  4. iShares by BlackRock. "iShares Preferred and Income Securities ETF."

  5. Morningstar. "WisdomTree U.S. Total Dividend ETF DVD."

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