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These 3 Dividend ETFs Offer Yield, Quality, and Diversification

Written by Nathan Reiff. Published 10/27/2025.

It’s no wonder that dividend stocks are considered a strong defensive play—passive income is increasingly attractive amid concerns about a potential downturn. But what happens when a dividend-paying firm faces challenges and reduces or eliminates its payout? Monitoring metrics like the dividend payout ratio can help manage that risk, and for many investors the simplest protection is diversification.

Diversified exposure to dividend names is easy to achieve through exchange-traded funds (ETFs) that focus on income-producing stocks. However, not all dividend ETFs are the same, and it’s important that a fund’s holdings provide the breadth of diversification needed to complement an investor’s broader portfolio. Below is a look at three leading dividend ETFs worthy of attention.

High-Quality Dividend Stock Basket Spread Across a Variety of Sectors

The iShares Select Dividend ETF (NASDAQ: DVY) is the oldest ETF on our list. For about 22 years it has tracked an index of multi-cap value stocks that pay dividends. To be included in the fund, a company must have at least five years of dividend payments. Stocks are evaluated using metrics such as dividend yield and dividend-per-share growth rate, among others.

The result is a pool of roughly 100 stocks with meaningful diversification and a consistent record of dividend payments. DVY is not heavily concentrated, providing fairly even exposure across its holdings, although the top 10 positions account for close to 20% of assets. Utilities stocks make up the largest share at more than 26% of the portfolio—unsurprising given the sector’s appeal to dividend investors. Financials also represent about a quarter of DVY’s holdings, alongside consumer staples, consumer discretionary, materials and other names.

DVY’s smaller portfolio compared with some dividend ETFs may appeal to investors seeking a narrower focus on companies with proven distribution histories. Its expense ratio of 0.38% is higher than some alternatives, however.

Strict Dividend History Requirements Characterize SDY’s Portfolio Approach

While DVY requires a five-year history of dividend payments, the SPDR S&P Dividend ETF (NYSEARCA: SDY) requires companies to have increased dividends for at least 20 consecutive years. That screening helps the fund target established firms that generally provide both capital appreciation and reliable dividend income. As a result, SDY’s holdings tend to be large, well-established companies concentrated in sectors such as industrials, consumer staples and utilities.

SDY’s portfolio is roughly 50% larger than DVY’s, with about 150 positions. Assets are fairly evenly distributed, and the top 10 holdings account for 19% of assets. SDY’s methodology, which emphasizes dividend yield, results in a strong large-cap tilt: more than 83% of the portfolio is large-cap. Its expense ratio is 0.35%.

Large and Liquid Fund With a Low Cost But High Concentration

With more than $70 billion in assets, the Schwab US Dividend Equity ETF (NYSEARCA: SCHD) is one of the largest and most popular dividend ETFs. Its one-month average trading volume of nearly 18 million shares makes it extremely liquid. SCHD is also very low cost compared with the other funds on this list, with an expense ratio of just 0.06%.

In addition to dividend history, stocks in SCHD’s portfolio are screened for overall financial strength. The fund holds roughly 100 names and leans toward energy, consumer staples and healthcare. One trade-off for SCHD’s low cost and liquidity is concentration: the top 10 positions represent more than 41% of assets, which can increase risk if any of those companies face volatility or dividend pressure.

Bottom line: each fund offers a different balance of history, diversification, cost and concentration. DVY provides a focused basket of dividend-paying value stocks with a modest expense ratio. SDY targets companies with long histories of dividend increases and a strong large-cap bias. SCHD offers very low cost and high liquidity but higher concentration in its top holdings. Investors should weigh these trade-offs against their income goals and risk tolerance when choosing a dividend ETF.