DEFINITION of 'Dividend ETF'

Any exchange-traded fund that seeks to provide high yields by investing in a basket of high-dividend-paying common stocks, preferred stocks or REITs. There are dividend ETFs that contain only U.S. domestic stocks and global dividend ETFs, which have an international focus. The indexes used to create dividend ETFs vary by fund manager or custodian, but most contain stocks with a high level of liquidity and above-market dividend yields.

BREAKING DOWN 'Dividend ETF'

Although dividend ETFs are passively managed around an index, that index may be the result of certain quantitative screens, such as companies with a history of increasing their dividends, or larger blue-chip companies with a higher level of perceived safety.

The expense ratios of dividend ETFs should be comparable to - or lower than - the cheapest no-load mutual funds with similar investment objectives. As with all ETFs, dividend ETFs can be traded intraday. These types of funds may be part of the core portfolio of an income-seeking or generally risk-averse stock investor.

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