Dividend stocks can help bolster the income generated from portfolios, as well as provide ballast during rocky markets. For investors looking for dividend-focused mutual funds and exchange-traded funds, we screened for the strategies that Morningstar analysts believe will have the best chance of outperforming the market.
What Are US Dividend and Income Equity Funds?
Funds in the US dividend and income equity Morningstar Category must have a stated mandate to invest primarily in income-generating securities and must invest at least 90% of their equity holdings in securities domiciled in the US, according to the Canadian Investment Funds Standards Committee. In addition, these funds must invest at least 50% of their noncash assets in income-generating securities such that the three-year weighted average yield on the equity component of the fund’s portfolio is above 1.15 times the three-year weighted average yield of the S&P 500. The fund’s average capitalization must exceed the US small/mid-cap equity threshold.
The 3 Best US Dividend and Income Equity Funds and ETFs to Buy
To find the best US dividend and income equity funds and ETFs to buy, we screened for the lowest-cost primary share classes earning a
- Vanguard US Dividend Appreciation Index ETF (CAD-hedged) VGH
- Vanguard US Dividend Appreciation Index ETF VGG
- Fidelity US Dividend Registered Fund
Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. Medalist Ratings may differ among the share classes of a fund.
Morningstar expects the highly rated US dividend and income equity funds on this list to outperform their peers over a full market cycle. But even though all the funds on our list fall into the same category, they may practice different strategies and therefore behave differently from each other. Investors need to do some homework to understand exactly what a particular fund invests in before buying.
Here’s a quick look at each of the best US dividend and income equity funds and ETFs. Be sure to review a fund’s complete report for more details.
Vanguard US Dividend Appreciation Index ETF (CAD-hedged)
- Index Fund: Yes
- MER: 0.31%
- : GoldMorningstar Medalist Rating
- 12 Month Yield: 1.07%
The C$970.6 million fund has gained 17.65% over the past 12 months, while the average fund in its category is up 20.00%. The Vanguard fund, which launched in August 2013, has climbed 13.46% over the past three years and gained 8.25% over the past five years.
Vanguard US Dividend Appreciation Index ETF
- Index Fund: Yes
- MER: 0.31%
- : GoldMorningstar Medalist Rating
- 12 Month Yield: 1.07%
The C$2.4 billion fund has gained 17.90% over the past 12 months, while the average fund in its category is up 20.00%. The Vanguard fund, which launched in August 2013, has climbed 15.71% over the past three years and gained 12.27% over the past five years.
Vanguard Dividend Appreciation pulls in stable, profitable firms that have increased their dividend payments for over a decade. This simple, repeatable approach and low costs form a long-term edge over peers.
This strategy tracks the S&P US Dividend Growers Index, which targets US stocks that have increased their dividend payments for at least 10 consecutive years. It eliminates the highest-yielding names from that cohort to ensure its holdings are financially stable and more likely to continue making dividend payments. The index weights its holdings by their free-float-adjusted market cap, which leverages the market’s collective wisdom and mitigates turnover and the associated trading costs. It also limits individual stocks to 4% of the portfolio at each annual rebalance to promote diversification.
Targeting stocks with 10 years of dividend growth is a strict hurdle that provides a big advantage. It indirectly targets profitable companies that not only have the capacity to increase their dividend payments but also a willingness to do so. Combining yield and quality results in a balanced stable of more than 300 companies. However, if a company were to miss a single dividend payment, it would have to wait 10 years before it is welcomed back. For example, Apple and ExxonMobil didn’t join the portfolio until 2023 after a decade of increasing dividends. Still, this is a worthwhile trade-off that keeps the portfolio full of high-quality companies that should continue to increase their dividends.
The strategy’s strict requirements tend to weed out recent highflyers. Magnificent Seven stocks Amazon.com, Tesla, Alphabet, and Nvidia are among the biggest stocks missing from this portfolio. These omissions can cause diverging performance relative to large-blend peers in the short term, but this strategy should result in smoother and more consistent performance over the long run. Likewise, excluding the highest-yielding eligible stocks reduces the portfolio’s exposure to value traps without giving up the fund’s yield advantage over the broad market.
A portfolio of high-quality, stable companies should be tough to beat on a risk-adjusted basis over the long haul. This strategy’s low expense ratios further carve out a durable edge.
Bryan Armour, director
Read Morningstar’s full report on the Vanguard US Dividend Appreciation Index ETF (CAD-hedged).
Read Morningstar’s full report on the Vanguard US Dividend Appreciation Index ETF.
Fidelity US Dividend Registered Fund
- Index Fund: No
- MER: 1.09%
- : SilverMorningstar Medalist Rating
- 12 Month Yield: 1.22%
The C$301.2 million fund has climbed 22.82% over the past 12 months, outperforming the average fund in its category, which rose 20.00%. The Fidelity fund, which launched in January 2013, has climbed 17.60% over the past three years and gained 12.89% over the past five years.
Fidelity Equity Income’s topnotch manager plies a disciplined yet supple approach, driving High People and Above Average Process ratings.
This strategy posted stellar results in 2025. The retail share class gained 19.0%, thumping the Russell 1000 Value category index’s 15.9% return, and landed just outside the large-value Morningstar Category’s top decile.
While the fund’s low-turnover approach might suggest it simply benefited from favorable market trends, portfolio manager Ramona Persaud explains the year differently. In late 2024 and early 2025, Persaud saw elevated market risks with heightened market concentration in tech stocks, momentous election outcomes in the US and France, and interest rate uncertainty. In response, she leaned on idiosyncratic ideas such as inexpensive turnarounds and special situations that she perceived diversified and lowered the market risk of the portfolio. For example, she added to positions such as Samsung, Rolls-Royce, and Wells Fargo in the first half of 2025. Those positions posted some of the portfolio’s most significant gains.
Persuad focuses on three objectives: capital appreciation, downside protection, and a yield more than the S&P 500. To provide that, Persaud aims for low valuations on quality companies with stable profitability and good, steady free cash flows. She strives to view valuation and fundamentals from as many perspectives as possible, leaning on other dividend-oriented managers, research analysts, and quantitative experts at the firm.
Persaud consistently strives for the best possible approach grounded in details and data. Her training as an engineer anchored her emphasis on structure and stability, which informs the weight she puts on traversing difficult periods successfully and the precision she uses to generate downside protection. But unlike many investors who stress quantitative rigor, she invokes the art of investing often and consistently demonstrates humility when the market shifts.
In Persaud’s eight full years here, the fund’s retail share class gained 10.6% annualized, topping the 9.3% advance of both the Russell 1000 Value category index and the typical large-value category peer. While the dividend yield is relatively modest, its downside protection has been stout, making for a fine long-term holding.
Todd Trubey, senior analyst
Read Morningstar’s full report on the Fidelity US Dividend Registered Fund.
