Are these the best dividend ETFs in Australia [2023]?

Discover some of the best dividend ETFs in Australia

Data as of 23 October 2023 for share price. All other data as of 29 September 2023. Source: Stake, ASX Investment Products - September 2023.

*The list of funds mentioned is ranked by funds under management (FUM). When deciding what ETFs to feature, we analyse the financials, recent news, the state of the industry, and whether or not they are actively traded on Stake.

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How have these dividend ETFs performed long-term

Data as of 29 September 2023. Source: ASX Investment Products - September 2023.

Which Australian ETF pays the best dividends?

The Australian ETF that has had the best historical distribution yield based on the ASX Investment Products report is the SPDR S&P/ASX 200 Resources Fund ($OZR). OZR has been a top overall performer and dividend ETF on the ASX. This industry has done particularly well in recent times. 

Remember, high dividend returns don’t always mean positive capital returns. Smaller companies had higher dividend payouts than large caps, but less positive overall performances. This comparison excludes actively managed or strategy based ETFs. These can focus specifically on high yields, but often come with higher fees.

If you are looking for ETFs with the highest returns then check out the best ETFs in Australia based on 5-year, 3-year and 1-year performance.

Compare these ETFs against each other, like A200 vs VAS or STW vs VAS, to see their historical performance.

Why are dividend ETFs popular amongst investors?

These ETFs put emphasis on both the capital return and dividend yield. Dividend ETFs can provide investors with a regular stream of income when companies payout a proportion of their profits. It's one of the simplest ways to access a passive source of income and requires very little effort on the investors behalf compared to other options such as a rental property. Shareholders also have the tax benefit of franking credits on dividend returns.

While Australian businesses are known to boost dividend returns, having significant exposure to one company can be risky and there are no guarantees on future performance. A firm's quarterly income can vary considerably over the short term and the proportion invested to business activities instead of dividend payments also changes depending on their financial situation.

Dividend ETFs benefit from relatively lower volatility and offer greater diversification compared to individual stocks for those concerned about regular income.

There are also multiple managed fund ETFs on the ASX available to investors. They are mostly actively managed funds where professionals make an investment decision to select specific stocks.

For example, a global dividend fund could have criteria related to a high dividend yield and capital return to analyse shares. High-yield ETFs can screen the underlying index for stocks with a high dividend yield.

💡Related: Dividend stocks on ASX→

💡Related: Vanguard ETFs in Australia: Top 10 to watch in 2023→

How often do ETFs pay distributions?

The financial sector requires listed companies to publish quarterly, half-yearly and annual reports. This means that work is already placed for ETFs to pay out dividends every three months, in a similar pattern to stocks. The dividend income from the individual underlying holdings in a dividend ETF are pooled together and the dividend is paid as one amount to the investor.

As conditions regularly change in the equity markets, not all companies pay dividends every quarter and the amount of dividends paid depends on their recent financial status. The amount an investor gets in dividends is dependent on how many shares of the ETF they own – for example, if 1,000 shares of an ETF are available and a single investor owns 10, then they would hold 1% of the portfolio, and thus be entitled to 1% of dividend payments.

Dividend ETF FAQs

Which Australian ETF pays the highest dividend?

As of the end of February 2023, the biggest dividend ETF for Australian share options was the SPDR S&P/ASX 200 Resources Fund ($OZR) with a historical dividend yield of 15.51%. Resources were one industry that featured heavily amongst the top dividend ETFs, with the Betashares Resources Sector ETF ($QRE) just behind at 14.51%. Small caps outperformed large caps as the SPDR S&P/ASX Small Ordinaries Fund ($SSO) came third with 13.60%, while the Vanguard MSCI Australian Large Companies Index ETF ($VLC) was fourth with 8.61%.

For the ASX dividend ETFs that don't strictly follow a traditional market cap-based index such as the S&P/ASX200, the SPDR MSCI Australia Select High Dividend Yield Fund ($SYI) had a historical dividend yield of 15.61%. The Betashares Geared Australian Equity Fund (Hedge Fund) ($GEAR) had a 12.24% dividend yield. This ETF uses gearing to magnify the gains and losses of the S&P/ASX 200 index. The Intelligent Investor Australian Equity Income Fund (Managed Fund)($INIF) returned a dividend of 29.03% through a portfolio of 10 to 35 shares, and hasn't yet reached a five-year track record.

Which ETF has the highest return in Australia?

As of the end of September 2023, the Betashares NASDAQ 100 ETF ($NDQ) had a five-year total annualised return of 16.92%. The BetaShares Resources Sector ETF ($QRE), was close behind with 14.51% and showed the strength of the resources sector over the past few years. The Global X Battery Tech & Lithium ETF ($ACDC) managed 15.92% over this period showing the strength of lithium in recent years and rise of EVs.

Australian high dividend ETFs were strong performers overall, with top dividend yield ETFs being similar to overall top performers. Dividend shares can provide investors with a higher income, as the dividend return is usually paid out to investors while the capital return is not realised until the ETF is sold. As the market conditions change over time and ETFs tend to appeal to those with a longer-term investment timeframe, these are products with at least a five-year track record.

Which U.S. ETF pays the best dividends?

The Betashares S&P 500 Equal Weight ETF ($QUS) had a historical distribution yield of 3.75% as of February 2023. The ETF gives equal exposure to the 500 largest companies listed in the U.S. by market cap. The equivalent for the unadjusted S&P 500 market index would only be 1.35%. The Betashares NASDAQ 100 ETF ($NDQ) managed 3.14%. Due to its size, the U.S. share market often accounts for the largest country exposure in global or internationally focused ETFs.

The Australian market tends to have high dividend payments compared to U.S. shares. The latter is often associated with growth stocks instead, especially related to U.S. technology shares. Some of the largest firms by market capitalisation, including Google's parent company Alphabet ($GOOGL) and Amazon ($AMZN), have famously never issued dividends.

This does not constitute financial product advice nor a recommendation to invest in the securities listed. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking appropriate financial or taxation advice before investing.