7 Best Income ETFs to Buy in 2025

It’s not necessary to spend a lot of time picking stocks in order to get cash flow. You can benefit from both steady cash payments and long-term growth by investing in income exchange-traded fund (ETFs).

Income ETFs provide yields, while fund managers manage your holdings. This is the closest thing you can come to passive income that requires no effort. The fund will work on autopilot once you have invested money, but you need to review its performance regularly and consider your investment strategy to decide if it still belongs in your portfolio.

The funds are popular with people approaching retirement who prefer to invest in safe assets over those that are risky.

What is an Income ETF (Equity Trust Fund)?

A publicly traded income ETF holds assets that produce income, such as stocks with dividends or bonds. Some income ETFs hold only one type of asset, while others hold both. All of these funds are designed to provide high dividends and capital appreciation to their investors.

Andy Wang, managing director at Runnymede Capital Management highlights the benefits income ETFs offer over growth-oriented funds. “Income-oriented ETFs appeal to investors who value stability and cash-flow over market-beating returns.” Income ETFs that produce cash flow and are low-cost can be a good choice for those who want to generate reliable income, particularly as they near retirement.

It’s not necessary to increase cash flow by using income funds. Investors prefer to search through hundreds of dividend stocks and bonds to build a portfolio. You can hire a fund manager to make these decisions on your behalf and achieve similar returns.

Investors should review an income ETF’s performance in the past, expense rate and yield. They should also consider management. These factors will help you to make the right decision.

A high-yielding ETF might look appealing, but its poor historical returns or high expense ratio could make it an unwise choice. You will have more information about a fund before you decide how to allocate your capital. Wang says that by examining all of these factors together, investors will be able to make better decisions and align their investments with their financial goals.

Schwab U.S. Dividend Equity ETF (SCHD)

It’s not hard to understand why the Schwab U.S. Equity Dividend ETF is so popular in dividend investing Reddit groups. The Dow Jones U.S. Dividend 100 Index is mirrored in this fund, which has produced an annualized return of 10.4% over the last decade as at May 21. This fund is consistent and offers a 3.9% SEC 30-day yield with a generous expense ratio of 0.06%.

Morningstar calls SCHD the “gold standard” for dividend funds. It is comprised of companies with large capitalizations, which value investors will appreciate. Verizon Communications Inc. and Coca-Cola Co. are the fund’s top two holdings. Both companies pay out high dividends. The fund’s top 10 holdings account for 41% of its total assets.

The fund’s top three sectors are energy, consumer staples, and health care. The fund has a tech component of just over 10%, but the majority of these stocks are mature. This fund has a low volatility and historically good returns.

SPDR S&P Dividend ETF (SDY)

The SPDR S&P dividend ETF invests $20 billion of its total assets in industrials, consumer staples, and utilities. These three sectors account for approximately half of SDY’s total assets. The ETF has an expense ratio of 0.35%.

SDY gives priority to dividend stocks which have increased their payouts over a period of at least 20 years. The fund’s stated objective is to mirror the S&P Dividend Aristocrats Index.

SDY’s capital is spread across 149 equity positions and has a 30-day SEC yield of 2.6%. Verizon and Realty Income Corp. are the top two holdings ( and). It only pools 17% of its total assets in the top 10 positions. This makes it less top-heavy compared to many ETFs.

SDY delivered an annualized 11,1% return in the last 15 years, as of May 21, 2018. These returns have been increasing in recent years, with an annualized return of 12.1% over the last five years.

Vanguard High Dividend ETF ( VYM

Vanguard High Dividend Yield is a Vanguard ETF that focuses on value large-cap stocks. It has an expense ratio of 0.06%. Vanguard’s fund has a low cost-to-income ratio, which is not surprising. Many of their funds are low fee.

The $70 billion fund also has a SEC yield of 2.7% and a 14.2% annualized return over the last five years. Morningstar data shows that an investor who invested $10,000 in VYM in 2015 saw their investment grow to $26,000.

VYM provides investors with exposure to 587 different stocks in its attempt to use the FTSE High Dividend Yield Index (HDYI) as a benchmark. Broadcom Inc. and JPMorgan Chase & Co. are its top two holdings. The fund’s two top holdings, Broadcom Inc. and JPMorgan Chase & Co., make up only 25% of its assets.

Gerard C. O’Reilly has been the portfolio manager of VYM since 2016, and he advises the fund. O’Reilly’s experience managing Vanguard index portfolios dates back to 1994.

WisdomTree U.S. Quality Dividend Growth Fund DGRW

WisdomTree U.S. Quality Dividend Growth Fund, a $15 billion income ETF that has a 15 percent annualized return in the last five years (as of May 21), is one of the top performers.

The top holdings of the fund suggest that there may be more gains to come. Magnificent Seven is well-represented in the fund’s top holdings and poised to profit from long-term artificial intelligent tailwinds.

DGRW is heavily invested in the tech sector, with almost a quarter its assets. The fund’s next two top sectors are industrials and consumer staples. DGRW’s attractive combination of dividends and price appreciation is reflected in its 0.28% expense rate.

ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

The ProShares S&P Dividend Aristocrats ETF focuses exclusively on “Dividend Aristocrats”, stable dividend stocks which have increased their payouts over a period of at least 25 years. These stocks have strong financials and fundamentals. The fund’s expense ratio is 0.35% and its trailing dividend yield is 2.2%.

Investors are exposed to 70 companies. The consumer staples industry has the highest representation at 22%; the Industrials sector is the second-highest allocation. NOBL manages $11.4 billion of assets and has produced an annualized return rate of 11.6% in the last five years.

Vanguard Dividend Appreciation ETF (VIG)

Vanguard Dividend ETF is very popular because it has done well in comparison to other income ETFs. As of May 21, the $101.8 billion fund had a 13.6% return on an annualized basis over the last five years, with a 12.3% return on an annualized basis over 15 years.

The ETF uses the S&P U.S. Dividend Growers Index to set its benchmark. VIG gives priority to large-cap companies that have a history of raising their dividends. The fund’s assets are spread across 338 equity holdings. At the moment, the two top stocks are Broadcom ( MSFT) and Microsoft Corp.

VIG is heavily weighted towards the technology sector. This represents nearly a quarter the assets of the fund. Next highest allocations were in health care, consumer staples and financial services.

VIG has a very low expense ratio (0.05%) which contributes to its impressive returns over the long term. Walter Nejman, O’Reilly and the fund have been led by them since 2016.

First Trust Morningstar Dividend Leaders Index Fund ( FDL).

First Trust Morningstar Dividend Leaders Index Fund holds 95 stocks, including Verizon and Chevron Corp. The fund’s assets are made up of these stocks, which make up 16%.

FDL’s $5.4 billion assets are primarily distributed across stocks in the health care sector, financial services, and consumer staples. These three sectors account for more than half the total fund positions. FDL offers a SEC yield of 4.5% for the 30-day period with an expense ratio of 0.45%.

Funds are impressed by the fund’s annualized return, which is 15.7% in the last five years. The average tenure of its seven managers is fifteen years, which adds to the credibility.