Learn about ETF dividends, how they work, and ways to invest.
Buying individual stocks isn't the only way to receive dividends. Funds often pay them too. ETFs (exchange-traded funds) can provide dividend income while also helping to diversify your investments.
Do ETFs pay dividends?
Yes, many ETFs pay dividends. When the stocks or other holdings in an ETF pay dividends, those payments are typically passed on to shareholders. This means you can earn dividend income without owning individual dividend-paying stocks.
Do all ETFs pay dividends? No, they don't. Whether or not an ETF pays dividends depends on what's in it. For example, a growth-focused ETF might contain stocks of newer companies that don't pay dividends.
How do you know if an ETF pays dividends?
It can be helpful to check an ETF's holdings and distribution history. You may want to view the dividend yield of various stocks in the fund, or look at some of its overall metrics like:
- Distribution yield (TTM): TTM stands for "trailing 12-month" yield and is based on the fund's income distributions from the past year.
- 30-day SEC yield: This is a standardized calculation from the Securities and Exchange Commission that represents what the fund might pay out over a full year based on its rate over the past 30 days.
If these numbers are greater than 0% it means the ETF has made regular payments to investors, including dividends.
How do ETF dividends work?
An ETF's dividends come from the income generated by holdings within the fund. The fund collects the dividends from stocks (or interest from bonds), pools the money, then distributes it to investors proportionally to the number of shares they own.
The timing of an ETF's dividend payments may differ from when the individual stocks make their payouts, and is usually on a monthly or quarterly basis. Payment amounts can also change depending on the performance and payouts of the assets in the ETF.
With the Plynk app, you can view all your recent and upcoming dividend payments in the income hub.
How do you get dividends from ETFs?
When you own shares (or fractional shares) of an ETF that pays dividends you're eligible to receive the distributions, as long as you bought the ETF before its ex-dividend date—a cutoff day that determines if it's the buyer or seller who is entitled to an upcoming dividend.
Like with stocks, you have 2 basic options for what to do with your dividends:
- Keep the ETF dividends as income.
- Reinvest them to buy more shares (often automatically through a dividend reinvestment plan).
Reinvesting your ETF dividends may help increase the value of your investment over time through the power of compound growth, when returns earn returns of their own.
Read more: Dividend investing strategy
Do mutual funds pay dividends also?
Yes, mutual funds can pay dividends as well. The general idea is the same as with ETFs—if mutual funds include assets that pay dividends, those dividends are passed on to the investors.
Read more: Comparing ETFs and mutual funds
What is a dividend ETF?
A dividend ETF is an ETF designed specifically to invest in securities that earn dividend income. There are various types of dividend ETFs, including:
- Dividend growth ETFs: Target companies with a history of regularly increasing their dividend payouts.
- High-yield dividend ETFs: Focus on stocks with above-average dividend yields to maximize current income.
- Broad-market dividend ETFs: Track large market indexes to offer a balance of current income and potential growth.
Dividend ETFs may appeal to investors looking for regular income and a simpler way to invest in multiple dividend-paying assets at once. But it's important to note that dividends are just one part of an ETF's total return.
Explore dividend ETFs with Plynk and get a 25% dividend match
If you visit the Discover page in the Plynk app and tap on ETF categories, you'll find one for dividend ETFs. Plynk also gives you a 25% cash boost on all dividends, up to $250 per year, payouts made monthly. Other terms apply.
