The five best equity ETFs focused on dividend income

The following funds from the most important investment regions, which hold a high rating, focus on regularly distributing a stable, consistent dividend, regardless of market conditions.

For those looking for funds with an investment strategy focused on generating regular income, investing in companies that achieve the highest dividend yield is attractive. These funds are designed to regularly distribute a consistent dividend, regardless of market conditions.

Nowadays, income investors are increasingly attracted to ETFs, as they are easy to buy, transparent and inexpensive.

When selecting an ETF, income investors should ensure that distributions are stable and dividend growth is consistent — and not be guided solely by which fund offers the highest yield. This reduces the risk of falling into a dividend trap, where a high yield masks large debts or low profits and the dividend is ultimately reduced or eliminated.

Dividend ETFs try to avoid this by balancing the yield derived from current income with the long-term capital growth of the portfolio. However, the precise strategy differs per fund; it is worth understanding how often a portfolio is rebalanced and which index the ETF tracks.

Five strategies for passive income across five regions

The following five passively managed equity ETFs focused on generating income, which hold a Morningstar Medalist Rating of silver or gold, each cover a different key investment area. A gold rating means that a fund, according to Morningstar analysts, has the greatest chance of outperforming other funds in the same category over the long term. A silver rating means that analysts expect a fund to outperform the relevant benchmark or comparable funds.

Our list includes funds from various providers:

• Fidelity US Quality Income UCITS ETF

• iShares MSCI Europe Quality Dividend Advanced UCITS ETF

• Vanguard FTSE All-World High Dividend Yield UCITS ETF

• WisdomTree Emerging Markets Equity Income UCITS ETF

• iShares UK Dividend UCITS ETF

For more explanation and details, see the morningstar website.

Sources: Morningstar, Valerio Baselli, Jean-Luc Picard