Best Dividend ETFs for European Investors (ugly truth) SCHD alternative

Here is a ready-to-use list of the best dividend ETFs for Europeans.

I have collected and compared the best ETFs we can buy from Europe and the US.

There are surprising facts and things to know.

Come with me.

Essential things to know:

• In this list you will find the best dividend ETFs a European investor can buy
• In many European countries, high taxes are paid on distributed dividends (I explain what you can do to save a lot of tax)
• European investor dilemma: UCITS or NON-UCITS ETFs

Definitive list of Best High-Dividend ETFs

Yes: you can buy these ETFs in Europe.

The aim of a portfolio of these ETF is to generate high and stable income from funds that have been around for many years.

These funds have many millions of dollars in AUM. Such ETFs are suitable for the very long term as they are unlikely to close or merge.

Where to buy these ETFs?

I buy these ETFs from the only broker I’ve found that allows me to do so: Freedom24.

Here is a screenshot from the broker website:

I’m not recommending this broker or any other. I’m just telling you what I found.

Feel free to visit the broker’s website and check for yourself:

Investments in securities and other financial instruments always involve the risk of loss of your capital. The forecast or past performance is no guarantee of future results. It is essential to do your own analysis before making any investment. 74% of the ETFs available at the Freedom24 platform generate passive income in the form of dividends.

Let’s see them one by one:

1️⃣ Vanguard International High Dividend Yield ETF (VYMI)

Investing only in US markets could be a mistake.
International diversification is always a good idea if done well as in the case of VYMI.
This ETF has a generous dividend and an attractive valuation.
It makes it into the list of the best dividend stock ETF ever.

• Expense ratio: 0.22%
• Assets under management: $6.8 billion
• Dividend yield: 4.55%
• Top holdings: Shell, Toyota, Novertis (dividend stocks)

2️⃣ Vanguard Dividend Appreciation ETF (VIG)

This is undoubtedly one of the most popular and respected high dividend exchange traded fund in the world.
I always take the opportunity to buy some when the markets are falling.
This ETF tracks the performance of the strong NASDAQ US Dividend Achievers.
So we are talking about stocks that have a proven track record of consistently increasing their dividends over the years.

1. Expense ratio: 0.06%
2. Assets under management: $69 billion
3. Dividend yield: 2,1%
4. Top holdings: Microsoft, JPMorgan Chase (dividend stocks)

3️⃣ Schwab U.S. Dividend Equity ETF (SCHD)

The world’s most popular dividend ETF is SCHD. It tracks the performance of the Dow Jones US Dividend 100 Index. This index contains some of the best companies in the world. Their dividends are not only generous, but also sustainable (and that is not a detail).

1. Expense ratio: 0.06%
2. Assets under management: $49 billion
3. Dividend yield: 3,5%
4. Top holdings: Broadcom, PepsiCo (dividend stocks)

Investments in securities and other financial instruments always involve the risk of loss of your capital. The forecast or past performance is no guarantee of future results. It is essential to do your own analysis before making any investment. 74% of the ETFs available at the Freedom24 platform generate passive income in the form of dividends.

4️⃣ Global X SuperDividend ETF (SDIV) ⚠️

SDIV is a very special ETF. You may not buy it for its stock market performance, but you might be tempted by its generous dividend, but you better watch out. This stock is not looking good at the moment so it is a dangerous buy (dividend trap).

The ETF tracks 100 equally weighted companies from around the world, including emerging markets, that are among the highest dividend yielding stocks available.

This fund is made up of REITS, MLPs and equities, so it is a little more complex than your average ETF. It pays out monthly and some investors still love it, even if the price is falling.

The best alternative to this very high yield ETF is the JEPI ETF (review).

1. Expense ratio: 0.59%
2. Assets under management: $780 million
3. Dividend yield: 13,13%
4. Top fund’s holdings: Ready Capital Corporation, Orient Overseas, Chongqing Rural Commercial Bank (dividend stocks)

🏆 JPMorgan Equity Premium Income ETF (JEPI)

I have dedicated a special space to this unusual ETF, so please read the JEPI review because it is worth it.

1. Expense ratio: 0.35%
2. Assets under management: $29 million
3. Dividend yield: 9,71%
4. Top fund’s holdings: Amazon, Adobe, Mastercard, Microsoft (dividend stocks)

🛑 Objections to the list above

You have been told that you CANNOT buy the best US high dividend exchange traded funds from Europe.
This is not quite true.
In fact, I simply use a broker that allows you to buy (some of) the best ETFs from Europe anyway, and I will show you how.

Here are some common objections to the above selection of ETFs:

# You can’t buy NON-UCITS ETFs as a European citizen

Maybe yes.

Some brokers allow you to do so, such as the one I mentioned. Read the Freedom24 review to find out more. If you complete the W-8BEN form before buying these US securities and read the KID document provided, you can do that (or you can seek their assistance on how to do it).

# You pay 30% withholding tax in the US with US ETFs

True, I should be able to reduce it to 15% by simply filling in the W-8BEN form. Depending on which country I come from, I can reduce my taxes on US dividends (this is just my experience, ask your tax advisor).

As Europeans, we should also be able to pay just 15% US witholding tax if we fill in that form. I haven’t tested it yet but it should work as promised.

Anyway, if I want to access the biggest and cheapest dividend exchange traded funds, then paying 15% or 30% withholding tax does not bother me. I focus on the best investment first.

Many of the euro-denominated UCITS ETFs are very small and expensive. Not suitable for a long-term ETF strategy (see list below).

Some UCITS ETFs are not even registered in Ireland, so taxation can be over 15%, but this is not the case in all European countries.

If you prefer to invest in european dividend ETFs accumulating you are also right if the purpose is to build compound interest. Just be aware that many accumulating european dividend ETFs are very small in size, and size matters.

The nightmare: I never want to be invested in an ETF that closes or merges with another and then suddenly has to pay all the tax on the profits.

In fact, if I invest in Accumulating ETFs, I can defer my taxes for a long time, as long as the ETF does not merge or close.

Now, let’s move ahead with more great ETFs.

My personal best Dividend ETFs to buy from Europe (Distributing in USD & UCITS)

Who are these ETFs for?

Mostly those who want to receive an income from their investment.

Why these ETS?

Because they are among the biggest and best UCITS ETFs available in Europe, but I still prefer the US-based ones from the previous list.

What do they have in common?

• Domiciled in Ireland
• They are all in US Dollars
• They hold World or US dividend paying companies
• They are not hedged

My personal best Dividend ETFs to buy from Europe (Accumulating in USD & UCITS)

Who are these ETFs for?

Investors who want to build a long-term growing portfolio also based on dividend growth.

Why these ETS?

Because they are among the largest (but still small compared to those domiciled in the US) UCITS ETFs in Europe.

What do they have in common?

• Domiciled in Ireland
• They are all in US Dollars
• They hold World or US stocks
• They are not hedged (that can be expensive)

Best Dividend ETF in Europe Accumulating in EUR (UCITS)

Who are these ETFs for?

Investors looking to build a long-term growing portfolio based on dividend growth with limited currency risk.

Why these ETS?

These are the largest euro-denominated Accumulating ETFs that you can easily access from Europe.

What do they have in common?

• Domicilied in Ireland
• They are all in EUR or hedged
• They hold European or US stocks

European Investors searching for the best dividend funds are probably looking for:

• accumulating
• EUR domiciled
• ETF in Euros

…just like these ones.

Some European investors prefer not to be exposed to the USD, and rightly so. I only partly agree, the EUR is a very new currency compared to the USD, GBP and JPY. I don’t like novelty when it comes to my investments.

⚠️ Beware: all these ETFs are extremely small (<100M€), so no one can guarantee that they will still be around in 10 years. Small funds may merge.

The best ETFs for European Dividend Stocks for JustETF

Here is a popular “best of” list in Europe I have received via email some time ago:

Who are these ETFs for?

What’s not too special about this list of the best ETFs?

The last two are very small funds. I’d never invest in an ETF that small.

The first one is great, BUT it is domiciled in Germany, so it may not be tax efficient for most European citizens.

This is just my opinion, so take it with a pinch of salt. JustETF provides a great service and it’s nice to use, but you should always do your own research.

Best Dividend ETFs Reddit

Many people go to Reddit when they want an unbiased opinion on which are the best ETFs for international investors.

Usually they are disappointed, because Reddit (and most forums) have great experts, but also average users with very little research to back up their statements.

Let’s dive into some threads!

Reddit user question: What is the best Dividend ETF in Europe? 

Best Reddit answer:

• SCHD
• VIG
• VOO
• DGRO
• DIVO
• JEPI
• JEPQ
• DJIA
• SPYI

These above are the best ETFs for Reddit.

Most users appreciate the SCHD and the recent JEPY ETF.

One more Reddit question is: “Which dividend ETFs do you plan to hold on to forever?”

The best Redditors answer is:

• 25% SCHD
• 25% JEPI
• 25% DIVO
• 25% DGRO

Again, beware that ETFs like JEPI are not traditional dividend ETFs, they work on options and are more complex.

On Reddit also the discussions on the best broker in Europe are on fire beyond the dividend equity etf.

“U.S.NEWS” has made a popular list of Dividend ETF to Buy

Her is it:

As you can see, these from U.S. News are all very cheap ETFs compared to the UCITS dividend stocks ETFs we get in Europe. They are all in USD and all huge compared to our EUR funds. In the US they measure the size of the funds in billions, in Europe in millions.

Investments in securities and other financial instruments always involve the risk of loss of your capital. The forecast or past performance is no guarantee of future results. It is essential to do your own analysis before making any investment. 74% of the ETFs available at the Freedom24 platform generate passive income in the form of dividends.

Morningstar also has its “Best Dividend Funds and ETF list”

As we can see here, Morningstar does not make two separate lists for best rated dividend funds and best dividend ETFs.

Here they are:

1. BlackRock Equity Dividend
2. Capital Group Dividend Value ETF
3. ClearBridge Dividend Strategy
4. Columbia Dividend Income

And also:

1. Fidelity High Dividend
2. FlexShares Quality Dividend
3. Franklin U.S. Low Volatility High Dividend
4. Schwab U.S. Dividend Equity ETF

All invest in great dividend stocks and most of it pay quarterly dividends.

The Motley Fool list of “Best Dividend Index Funds”

The very much loved Motley Fool has this list of dividend index funds:

Interestingly, The Motley Fool is publishing a “Risk Level” for its best dividend index funds” list instead of expense ratios.

NOTE: There are no UCITS ETFs on the “best list” of the world’s leading investment advisers. Apart from Europeans and a few Latin Americans, no one invests in UCITS ETFs.
Are they safer and more selective? Maybe they are! But nobody uses them because UCITS ETFs are usually ugly copies of the originals, tiny and cost more.

A list of ETF from a Researcher

According to EuropeanDGI, a reliable researcher, the best ETFs are:

• Fidelity US Quality Income UCITS ETF USD
• VanEck Vectors Ms Developed Markets Dividend Lead
• iShares STOXX Global Select Dividend 100

I can’t help but notice that there is a guy who has done some excellent research on dividend ETF using the Chowder Rule. His results are shown above.

⭕️ SCHD alternative in Europe

In my opinion, the best alternatives to the SCHD ETF are clearly:

• Vanguard High Dividend Yield Index ETF (VYM)
•  Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
• Schwab US Large-Cap Growth ETF (SCHG)
• ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

These are all non-UCITS ETFs available on Freedom24 or through a Swiss broker.

Alternatively, you can ask your broker to qualify you as a “qualified investor”.

The best European alternative to the SCHD ETF in UCITS form is the Fidelity US Quality Income.

Although it doesn’t really track the same index as the SCHD, it does a good job.

The Fidelity US Quality Income UCITS is:

• domiciled in Ireland
• a large fund with >800 million euros
• it fully replicates the high-quality companies it follows
• the expense ratio is much higher than the SCHD but still acceptable by European standards

⚠️ Beware: these are all distribution ETFs, so depending on your country of residence, they may not be very tax efficient compared to accumulation ETFs.

High-dividend ETFs can generate passive income

It is important to understand that the idea of generating passive income by investing in dividend-paying ETFs is not a fantasy.
The biggest advantage is that they are extremely easy to understand and buy.
Most of the funds mentioned here have been around for decades and regularly pay out generous quarterly dividends to their income investors.

Retirees are the group of investors most interested in dividend ETFs. This is because dividend payments allow them to generate additional retirement income.

On the other hand, those who want to build value over the long term tend to prefer funds that accumulate dividends internally.

The magic is that just by buying an ETF, I can gain immense diversification across hundreds of companies that pay dividends to their investors. This reduces the risk of concentration.

ETF with great dividend 10-Year Avgerage Annual Return comparison

Here is a fantastic chart from YCharts on the Best Performing Dividend ETFs:

ETF in the chart:

• SPDR S&P Dividend
• Vanguard High Dividend Yield ETF
• Schwab US Dividend Equity exchange traded fund

Can you live off ETF dividends?

The answer is yes, you can live on dividend payments. But you have to bear in mind that if your goal is to live on dividends, it is most likely to be achieved in the long term.

Unless you have a very large sum of money to invest in ETF and funds, the process will be slow.

How much do you have to invest to get $1,000 a month in dividends?

In an ETF that yields 2% a year, you would need to invest €600,000 up front to reliably receive €12,000 a year (or €1,000 a month) in dividends.

How can you earn €1,000 a month in dividend payments?

Yes, you would need a portfolio of dividend-paying ETFs worth at least €300,000.

Focusing only on dividend stocks and ETFs may not be the safest investment to generate income.

Are dividend ETFs a good investment for you?

Dividend exchange traded funds are one of the best investments you can make in your life.
I believe they are also a good investment because they are generally superior to dividend stock portfolios.

Let’s face it: very few investors have the time, inclination and ability to build and manage a dividend stock portfolio.

High-yield ETFs like these are an honourable shortcut.

Maintenance is extremely limited and the probability of any of the companies in my ETF going bankrupt is virtually non-existent.

How to invest in dividend stock ETF?

Investing in ETFs like these requires research and clear ideas.
As you have seen, these ETFs are all different.

To invest in dividend paying ETFs all you need to do is:

1. Choose the best high dividend ETF
2. Make sure they manage their income in the way you want (accumulation or distribution)
3. Check that they have a tax regime that is compatible with your country of residence (there are big differences in Europe)
4. Decide how much you want to invest in ETFs
5. Hire the best broker in Europe to buy ETFs for you (I am using this one, but you do your research)

That is all.

Generally speaking, those who invest in this way accumulate a small amount of ETFs each month, as with DCAs.
It is worth keeping an eye on your portfolio or having it managed by an authorised adviser, especially if large sums are involved.

How To Choose your Dividend ETFs?

Here are the questions you need to ask in order to pick a dividend fund:

• Distribution or Accumulation ETF: Will I receive dividends or just have it all reinvested?
• ETF size: large is better? YES.
• Currency of the ETF: EUR if you live in Europe and you don’t want currency risk or have to pay currency hedging.
• Exchange on which the ETF is listed: pick the ETF with the highest volume exchanged or the cheapest for you.
• ETF fees: When in doubt, go for the cheapest option available.
• Type of replication: it may be sampling, full or partial. It may be less important than what we think.
• Market of negotiation: the one that offers the highest trading volume on average.

Taxation is also an issue, but it varies widely from country to country.

In most cases, Irish-domiciled ETFs are the best choice for European dividend investors.

If I buy a US dividend ETF, I am effectively paying a higher withholding tax in the US. There are exceptions.

Risk of investing in high-yield ETFs

Some of the risk international dividend investors have to face are:

• Market risks
• Geographical exposure risk
• Tracking Error
• Currency risk
• Fund Mangers can changer get too creative

If I’m not too confident about investing in dividend ETFs, I can turn to the best high-yield savings Accounts in Europe.

Dividends ETFs and Taxes in Europe

High taxation on dividends can be a problem.

Some investors in Europe go so far as not to invest at all, arguing that too much money ends up in tax anyway.

How are ETF dividends taxed?

Let’s see what the rules are.

I am not a tax advisor and do not want to give incomplete or inaccurate information. So I invite you to talk to your accountant.

Mutual funds in Europe are subject to a 30% withholding tax on all US equity dividend payment.

The exception is Irish domiciled ETFs and funds which pay ‘only’ 15%.

All other ETFs pay 35%, including funds domiciled in Germany, Luxembourg and the Netherlands.

The best dividend ETFs for German investors may differ from the best high yield ETF for UK investors and this is because of tax.

Benefits of Investing in Dividend ETF

There are a number of undeniable benefits to investing in ETFs with a dividend strategy.
The main benefits are tax efficiency, low costs and total transparency.

Investing in high-dividend ETFs also allows us to capture potential gains from both dividends and any long-term share price appreciation.

An additional benefit is that not only do we not have to worry about rebalancing the stocks in our portfolio, but these types of securities also tend to increase the dividends they pay over the years.

If I am an investor that only focus on growth stocks like Google, I cannot expect any dividend soon.

How did I research these ETF list?

I have been an investor in both dividend exchange traded funds and shares for a long time.

Most of my investments are from Europe, so I know what are the typical problems we have to face with taxes and tools. I used several websites to research and compile this list and many of those are of course part of my portfolio.

Of course, I thought it would be healthy to also share the point of view of some fund managers, big brands in the financial field, such as Morningstar, Motley Fool and not only my humble point of view.

I want to be clear, not all of these ETF strategies are suitable for beginners and they are to be considered only for the long term.

Which ETF Has the Highest Dividend Yield?

The popular EFTDB has a list of the highest dividend paying ETFs:

I avoid investing in the highest dividend paying companies ETFs because very often there are serious reasons for them to pay that dividend (usually a sharp fall in price).

The TSLY and the KBA are available on Freedom24 under the codes TSLY.US and KBA.US

What’s good about UCITS guidelines?

The acronym UCITS stands for “Undertakings for the Collective Investment of Transferable Securities”.

It refers to the European Union directive that allows collective investment schemes to operate safely on a cross-border basis.

UCITS, for example, says that no single asset can represent more than 10% of the fund’s assets and that holdings of more than 5% in aggregate cannot exceed 40% of the fund’s assets.

This sounds nice, but in reality you don’t want a UCITS fund that contains illiquid assets, because it might get to different valuations (NAV).

The consequence of the 10% limit is that it increases risk for investors, as it may lead to restrictions on fund withdrawals if the fund is unable or unwilling to sell illiquid assets in times of market turbulence.

Conclusions

Investing in high-dividend paying ETFs is certainly a good idea.
Don’t take my ETF picks as the absolute best to buy, always do your research.

A smart investor should never chase the highest dividend yield. Although ETFs are well diversified, high dividend yields often come with high risk.

If you’d like to share your experience of the best dividend ETFs in Europe in the comments, please feel free to do so.

AQ on the dividend ETF for European investors