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The 5 Best Equity Income ETFs

These top-rated funds for each main geographical area are designed to offer regular, low-volatility dividends, regardless of market conditions.

For investors looking for strategies that generate a regular income stream, funds with exposure to the companies with the highest dividend yields are an attractive option. These are products designed to offer regular, low-volatility dividends, regardless of market conditions.

Today, income investors are increasingly attracted to exchange-traded funds because they’re easy to buy, transparent, and cheap.

When selecting ETFs, income investors should look for stable payouts and constant dividend growth, rather than the highest yield. This lessens the risk of falling into a “dividend trap,” which is when a high yield masks problems such as high debt and low profitability, and a dividend that is eventually cut or scrapped.

Dividend ETFs try to avoid this by balancing their yield from current income with the portfolio’s long-term capital growth. However, strategies vary from fund to fund, and it’s worth understanding how often the portfolio gets rebalanced and what index the ETF is replicating.

5 Passive Income Strategies for 5 Different Regions

These five passively-managed equity income ETFs, with a Morningstar Medalist Rating of Silver or Gold, each cover a different main geographic region. A Gold rating means Morningstar analysts believe a fund has the greatest chance of outperforming its category over the long term, while a Silver rating means they believe it will outperform its relevant performance benchmark and/or peer group.

A number of different providers’ funds make the list:

The Best Equity Income ETFs Equity Income

Here’s a closer look at these top-rated strategies:

Fidelity US Quality Income UCITS ETF FUSD

The Fidelity US Quality Income UCITS ETF gained 2.99% over the past year, outperforming the average fund in the US equity income category, which fell 3.18%. The fund placed in the fifth percentile for performance and beat its benchmark, the Morningstar US High Dividend Yield Index, by 2.09 percentage points. The €1.5 billion fund has gained 12.89% over the past three years, while the average fund in its category is up 8.17%.

iShares MSCI Europe Quality Dividend Advanced UCITS ETF QDVX

Over the past year, the iShares MSCI Europe Quality Dividend Advanced UCITS ETF rose 5.0%, while the average Europe equity income fund gained 15.09%. The fund placed in the 95th percentile for performance and lagged its benchmark, the Morningstar Developed Europe Dividend Yield >2.5% Index, by 19.73 percentage points. The €887.5 million fund has climbed 10.22% over the past three years, underperforming the average fund in its category, which rose 11.68%.

Vanguard FTSE All-World High Dividend Yield UCITS ETF VHYD

The €8.9 billion Vanguard FTSE All-World High Dividend Yield UCITS ETF rose 12.17% over the past year. The gain on the passively managed fund beat the 5.27% gain on the average fund in the global equity income category, leaving it in the 14th percentile for performance. The fund beat its benchmark, the Morningstar Global Markets High Dividend Yield Index, by 2.24 percentage points. Over the past three years, the Vanguard fund rose 12.38%, while the average fund in its category rose 10.51%.

WisdomTree Emerging Markets Equity Income UCITS ETF DEMD

The WisdomTree Emerging Markets Equity Income UCITS ETF gained 10.23% over the past year, underperforming the average fund in the global emerging markets equity category, which rose 24.77%. The fund placed in the 95th percentile for performance and lagged its benchmark, the Morningstar Emerging Markets Target Market Exposure Index, by 13.01 percentage points. The €193 million fund has gained 12.05% over the past three years, while the average fund in its category is up 12.48%.

iShares UK Dividend UCITS ETF IUKD

Over the past year, the iShares UK Dividend UCITS ETF rose 27.31%, while the average UK equity income fund gained 11.57%. The fund placed in the first percentile for performance and beat its benchmark, the Morningstar UK All Cap Target Market Exposure Index, by 9.91 percentage points. The €1.4 billion fund has climbed 16.26% over the past three years, outperforming the average fund in its category, which rose 10.92%.

This article was generated with the help of automation and reviewed by Morningstar editors. Learn more about Morningstar's use of automation

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.

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