{"id":415455,"date":"2021-09-23T13:15:51","date_gmt":"2021-09-23T12:15:51","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=415455"},"modified":"2026-02-16T16:15:44","modified_gmt":"2026-02-16T16:15:44","slug":"dividend-etfs","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/share-trading\/invest-in\/exchange-traded-funds-etfs\/dividend-etfs","title":{"rendered":"How to invest in dividend ETFs"},"content":{"rendered":"

Dividends<\/a> are an excellent way for investors to make money as shareholders. However, not everyone is comfortable researching and picking individual stocks to invest in. <\/p>

Investing in dividend exchange-traded funds (ETFs) provides an alternative. It can be a simple, diverse and cheap way to make the most of dividend-paying stocks and compound growth with the headache of managing your own stock portfolio. <\/p>

What is a dividend ETF?<\/h3>

A dividend ETF is an exchange-traded fund (ETF)<\/a> that tracks the performance of an index or basket of dividend-paying stocks<\/a>. This could mean using an index such as the FTSE 100<\/a> or S&P 500<\/a>, but screened for those companies paying dividends. <\/p>

The dividends paid out by the ETF can either be rolled up to buy more shares in the ETF or paid out as a income. Dividend ETFs are passively managed, which means they can be quite cheap to invest in as they don\u2019t need much expert oversight.<\/p>

Best dividend ETFs in the UK<\/h3>

Here are some of the best-performing UK dividend ETFs and the ETFs with the highest dividend yields in the UK, according to JustETF.<\/p>

Best UK dividend ETFs<\/h4>

<\/use><\/svg>Note:<\/strong> We\u2019ve added a link next to each of these funds, which takes you to a share trading<\/a> app where you can sign up to buy shares<\/a> in each ETF.<\/p>

Table: sorted by 1-year performance based on data from JustETF.com to 5 February 2025<\/div>
ETF<\/th>Icon<\/th>Dividend yield<\/th>1-year performance (to Feb. \u201925)<\/th>Link to invest<\/th><\/tr><\/thead>
L&G Quality Equity Dividends ESG Exclusions UK UCITS ETF (LDUK)<\/th>\"L&G\"<\/td>4.3%<\/td>22.02%<\/td>Invest with HL<\/a>Capital at risk<\/td><\/tr>
iShares UK Dividend UCITS ETF (IUKD)<\/th>\"iShares\"<\/td>5.59%<\/td>19.19%<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
SPDR S&P UK Dividend Aristocrats UCITS ETF (UKDV)<\/th>\"SPDR\"<\/td>3.26%<\/td>16.56%<\/td>Invest with InvestEngine<\/a>Capital at risk<\/td><\/tr><\/tbody><\/table>

Best high dividend yield ETFs<\/h4>

<\/use><\/svg>Note:<\/strong> We\u2019ve added a link next to each of these funds, which takes you to a share trading app where you can sign up to invest in the ETF<\/a>.<\/p>

Table: sorted by 1-year dividend yield based on data from JustETF.com to 5 February 2025<\/div>
ETF<\/th>Icon<\/th>Dividend yield<\/th>1-year performance (to Feb. \u201925)<\/th>Link to invest<\/th><\/tr><\/thead>
Global X Nasdaq 100 Covered Call UCITS ETF D<\/th>\"global<\/td>12.11%<\/td>3.53%<\/td>Invest with HL<\/a>Capital at risk<\/td><\/tr>
Global X SuperDividend UCITS ETF USD Distributing (SDIP)<\/th>\"global<\/td>11.11%<\/td>3.3%<\/td>Invest with HL<\/a>Capital at risk<\/td><\/tr>
Global X S&P 500 Covered Call UCITS ETF D<\/th>\"global<\/td>9.91%<\/td>2.66%<\/td>Invest with HL<\/a>Capital at risk<\/td><\/tr>
iShares Emerging Markets Dividend UCITS ETF (SEDY)<\/th>\"iShares\"<\/td>7.97%<\/td>3.08%<\/td>Invest with InvestEngine<\/a>Capital at risk<\/td><\/tr>
Xtrackers STOXX Global Select Dividend 100 Swap UCITS ETF 1D (XGSD)<\/th>\"Xtrackers\"<\/td>6.7%<\/td>2.41%<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
iShares Euro Dividend UCITS ETF (IDVY)<\/th>\"iShares\"<\/td>5.95%<\/td>6.88%<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr><\/tbody><\/table>

Safe alternatives to dividend ETFs<\/h4>

Another option is using income-focused investment trusts<\/a> instead of dividend ETFs. They are traded on the London Stock Exchange (LSE) like ETFs but are actively managed and have a structure that allows the trusts to retain up to 15% of profits to pay as income in other years to smooth out dividend payments in turbulent times.<\/p>

This means there are a decent number of investment trusts on the AIC\u2019s \u201cdividend heroes\u201d list that are relatively safe dividend investments because these funds have been paying and increasing their dividend payments for at least 20 years without missing a step! Here\u2019s the top list of these potentially safer dividend investments:<\/p>
Trust<\/th>Consecutive years dividend increase<\/th>Link to invest<\/th><\/tr><\/thead>
City of London Investment Trust<\/th>58<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
Bankers Trust<\/th>58<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
Alliance Witan<\/th>58<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
Caledonia Investments<\/th>57<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
The Global Smaller Companies Trust<\/th>54<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
F&C Investment Trust<\/th>53<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
Brunner Investment Trust<\/th>52<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
JPMorgan Claverhouse<\/th>52<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
Murray Income Trust<\/th>51<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr>
Scottish American<\/th>50<\/td>Invest with XTB<\/a>Capital at risk<\/td><\/tr><\/tbody><\/table>

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you\u2019re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.<\/p><\/div><\/article>

How does a dividend ETF work?<\/h3>

A dividend ETF will track the performance of popular dividend indices. There will be subtle differences between the way these indices work. Some target companies with the highest dividend yields, while others screen for consistency and longevity of payments. <\/p>

And others focus on companies that have seen the strongest growth in dividends over time. These indices may be weighted by market capitalisation<\/a> or by the level of dividend and may focus on individual countries or sectors.<\/p>

How to choose a dividend ETF<\/h3>

The right dividend ETF for you will depend on your personal investment goals<\/a>, including whether you need an income from your investments today, the level of income you need and whether you want to prioritise a high or growing income.<\/p>

Here are the main considerations when buying a dividend ETF:<\/p>