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How To Find Free ETFs That Pay Dividends

04/03/2020

If you’re a new investor, one of the easiest ways to diversify your portfolio is by purchasing ETFs. ETFs are similar to mutual funds in that they contain a “basket” of selected stocks or bonds that you own with a single purchase. Unlike a mutual fund, most ETFs are passively managed, and you can trade them throughout the day like individual stocks. Many ETFs also pay dividends, a small percentage of each company’s profits.

Obviously, there’s no such thing as a $0 ETF — but that doesn’t mean that you have to pay hundreds of dollars in commission to diversify your portfolio and start solidifying yourself as an investor. Let’s take a closer look at what an ETF is and how it works, how to choose the best dividend-paying ETFs and a few of the best dividend ETFs you can invest in commission-free through WeBull.

How to Choose an ETF

With thousands of ETFs available for sale, how can you choose the best ones to add to your portfolio? WeBull’s Hot ETFs list provides you with a great jumping-off point for exploring ETFs in different categories and index classes. Focus on these three key factors when you compare ETFs.  

● Dividend yield. If you’re investing to gain dividends, one of the first things you’ll want to check is that the ETF you’re looking at pays dividends at all. Though any stock or ETF may choose to offer dividends, it’s important to remember that there’s no guarantee that the assets you buy will continue to pay dividends in the future — even if it has a long history of solid and timely dividend payments.

Most stock charts will show you an ETF’s dividend history. However, instead of looking solely at the dollar-amount the ETF pays and choosing the highest value, it’s smart to compare funds by dividend yield instead. The dividend yield is equal to the annual dividend divided by the ETF’s price and multiplied by 100. For example, if an ETF costs $35 per share and pays a total annual dividend of $5.00, the dividend yield is 14.29%.

When you shop by dividend yield, higher isn’t always better. Most experts recommend avoiding investing in assets with dividend yields over 10% because this payout ratio is often unsustainable. The only exception is when you’re investing in real estate investment trusts (REITs), which are legally required to pay out at least 90% of their taxable income back to investors in the form of dividends.

Always avoid ETFs with dividend yields above 100%. This indicates that the companies making up the fund are paying out more money to investors than the fund is bringing in, and is almost certain to reduce its dividend payout in the near future.

● Market capitalization. The term “market capitalization” refers to the overall value of the company in terms of the number of available shares it has issued. For example, large cap stocks typically have high-value stocks and represent stable, long-standing companies. However, these companies usually have lower dividend yield percentages. If you’re an investor who can manage a higher level of risk, you may want to choose mid-cap or small-cap funds, which typically have more volatility and higher dividend payouts. If you’re nearing retirement and want to be more conservative with your money, stick with large-cap ETFs.

● Industry diversification. Remember the old saying “don’t put all of your eggs in one basket?” The same rule applies to investing in ETFs. Explore plenty of options in multiple industries, ranging from housing to foreign currencies to commodities like agriculture and precious metals. As you buy, try to divide your available funds between multiple industries to lessen your risk of loss should a particular sector be hit with a recession.

How Often are Dividends Paid on ETFs

If you own a dividend-paying ETF, you’ll receive dividend payments on a schedule set by the fund. When you own a dividend-paying ETF, you’ll usually see three dates listed on your payment schedule: an ex-dividend date, a record date and a payment date. Here’s what each date means.

The ex-dividend date is the date you need to own a share of an ETF by in order to receive the fund’s next dividend. The record date is the date when the fund’s managers record everyone who will receive a dividend. The ex-dividend date is usually one business day before the record date.

For example, if Apple has an ex-dividend date on March 28th and a record date of March 29th, it means that everyone who owns at least one share of Apple stock on the 28th is entitled to receive a dividend. On March 29th, financial leaders at Apple will record the names of everyone who will receive a dividend. ETFs function in the same way.

As the name suggests, the payment date is the date on which you’ll actually receive your dividend. Most ETFs set their payment dates about a month after the ex-dividend date.

Each individual ETF sets its own dividend payment schedule. Three of the most common payment schedules include:

● Quarterly. Most stocks and ETFs pay dividends four times a year on a quarterly schedule. Most quarterly schedules have ex-dividend dates in March, June, September and December.

● Monthly. If an ETF has a monthly dividend, it means that you’ll receive a small dividend each month.

● Annually. If an ETF pays an annual dividend, it means that you’ll receive one dividend per calendar year. Each ETF sets its own ex-dividend date, and it can be in any month of the year.

Even after your payment date arrives, you may need to wait a few days for your dividend to clear in your brokerage account. From that point, you can reinvest your dividend funds or transfer them back to your bank account.

Free ETFs with Dividend Payments

Now that you understand how ETFs that pay dividends work and how you can shop for funds, let’s take a look at a few of our favorite dividend-paying ETFs. These ETFs are available for purchase with $0 commissions when you open a WeBull account and deposit ANY amount — you’ll even get your first stock absolutely free.

Start Investing in ETFs Today

Investing in dividend-paying ETFs doesn’t need to be a challenge. Start by researching ETFs in terms of dividend yield, market capitalization and other risk factors. You can also begin by browsing WeBull’s hot ETF list for ideas on new industries and commodities to invest in. When you find a fund that fits your risk tolerance, sign up for an account with WeBull to start buying and selling without worrying about commissions. 

source: https://www.webull.com/blog/33-How-To-Find-Free-ETFs-That-Pay-Dividends