Some companies share a portion of their year’s earnings with the people who hold shares in their business through payments known as dividends. Dividend funds allow you to take advantage of these payments by investing in a number of stocks that offer dividend payments. Find the best dividend funds to invest in below.
Dividend returns are not guaranteed. You may receive less than your original investment.
The Best Dividend Funds at a Glance
Code/ISIN | Price | Net Assets | Expense Ratio | |
|---|---|---|---|---|
iShares UK Dividend UCITS ETF | IUKD | £6.56 | £833.38 million | 0.40% |
SPDR S&P UK Dividend Aristocrats ETF | UKDV | £9.84 | £114.71 million | 0.30% |
Vanguard FTSE All-World High Dividend Yield UCITS ETF | VHYL | £47.68 | £3.28 billion | 0.29% |
L&G Quality Equity Dividends ESG Exclusions UK UCITS ETF | LDUK | £0.76 | £38.69 million | 0.25% |
FTF Martin Currie UK Smaller Companies Fund | GB00B7FFF708 | £2.51 | £201.03 million | 0.82% |
JOHCM UK Equity Income Fund | GB00B03KR831 | £3.90 | £1.62 billion | 1.31% |
Liontrust Sustainable Future UK Growth | GB0030028871 | £0,. | £758.02 million | 0.51% |
*Data as of April 2024.
iShares UK Dividend UCITS ETF
Traded on the London Stock Exchange and provides an annualized dividend yield of 6.5%, with an ongoing charge of 0.4%. The fund tracks the performance of an index composed of the fifty highest-yielding stocks in the United Kingdom. The companies making up this index are predominantly financial, followed by materials and consumer staples sectors.
With an average return of 10.50% in the past three years, this ETF comprises the big names in many industries, with Rio Tinto PLC, HSBC Holdings PLC, and British American Tobacco PLC being some of the top holdings.
SPDR S&P UK Dividend Aristocrats UCITS ETF
The SPDR S&P UK Dividend Aristocrats fund is designed to track the performance of forty of the highest dividend-yielding companies from the United Kingdom, as measured by the S&P Europe Broad Market Index (BMI). Some of its top holdings include Intermediate Capital Group PLC, Legal & General Group PLC, Hargreaves Lansdown PLC, and IG Group Holdings PLC.
These companies have managed to consistently pay out increasing or stable dividends for at least seven consecutive years. As such, it offers investors an attractive dividend yield of 4.17% and has a three-year average return of 2.65% at the time of writing.
Vanguard FTSE All-World High Dividend Yield UCITS ETF
The Vanguard FTSE All-World High Dividend Yield UCITS ETF employs a passive management investment approach, which involves physical acquisition of securities, in order to replicate the performance of the FTSE All-World High Dividend Yield Index.
This index gives investors broad exposure to over 1,700 stocks in emerging and developed markets that have higher dividend yields than most peers. After hitting an all-time high of just above £15,000 in 2022, this ETF has maintained its uptrend with a three-year gain of 10.63%.
L&G Quality Equity Dividends ESG Exclusions UK UCITS ETF
L&G Quality Equity Dividends ESG Exclusions UK UCITS ETF is a new fund on the block, but it's already making waves with its unique approach to investing. It tracks the FTSE All Share ex IT ex CW ex TC ex REITS index, which is reviewed semiannually for stocks with negative or zero return on equity, or those not meeting specific ESG criteria. The fund also employs ESG exclusions and membership in ICB subsectors to further refine the index selection process.
The top holdings in this ETF include some of the biggest names on the British stock market, such as BAE Systems, National Grid, Admiral Group, Taylor Wimpey, and Diageo. It’s managed by 25 fund managers supported by two analysts who invest in a diverse mix of companies from across a range of sectors in Britain.
It slumped to an all-time low in October 2022 but has since rebounded, recovering by 5.2% in the following four months.
FTF Martin Currie UK Smaller Companies Fund
The FTF Martin Currie UK Smaller Companies Fund offers a prudent approach to investing in smaller companies, as it’s substantially made up of stocks from growth-focused businesses as well as potentially undervalued 'value' stocks.
The fund manager selects a relatively small number of holdings, spread across financial and consumer service industries, including Alpha Group International PLC, Foresight Group Holdings LTD, Gresham House PLC, and Polar Capital Holdings PLC.
The fund has been able to capture the growth and dynamism of the UK market and takes advantage of the IPO market, investing in newly listed companies. It aims to grow in value more than the Numis Smaller Companies ex-Investment Trusts Index, and at least two-thirds of the fund is invested in companies listed on the index.
The fund has gained a total of 6.93% in the past three years, and its charges are reasonable, with no initial charge and an annual charge of 0.82%.
JOHCM UK Equity Income Fund
The fund, managed by renowned stock pickers James Lowen and Clive Beagles, takes a contrarian approach to investing by only selecting stocks with a prospective yield that is higher than the FTSE All-Share Index.
To achieve this, the managers strive to invest in strong companies with higher starting yields at attractive prices. The top five holdings are BP PLC (6.23%), Glencore PLC (5.04%), Barclays PLC (4.04%), Standard Chartered PLC (3.68%), and Natwest Group PLC (3.60%).
The fund has had an impressive run in the past decade, maintaining a strong upward trajectory, and outperforming its benchmark index on multiple occasions. With a cumulative gain of 58% in the past three years, this fund is ideal for those seeking capital growth and a steady dividend yield.
Liontrust Sustainable Future UK Growth Fund
The Liontrust Sustainable Future UK Growth Fund is focused on long-term capital growth for five years or more. Using a thematic approach, the fund looks to identify and invest in UK companies that are benefiting from the major structural changes that will shape the global economy of the future.
These investments meet ESG criteria and include equities and equity-related derivatives (up to 95% of the fund's assets), corporate debt securities, other transferable securities, money market instruments, warrants, cash and deposits (up to 10% of fund assets).
With a strong focus on financials, industrials, and healthcare, the top five holdings include 3i Group PLC (5%), AstraZeneca PLC (3.27%), Unilever PLC (3.51%), Haleon PLC (3.37%), and London Stock Exchange Group PLC (3.16%).
The fund has maintained a steady uptrend with a cumulative gain of 80.5% in the past ten years and -3.8% in the past three years.
What are dividend funds, and how do they work?
Dividend funds are a type of mutual fund or exchange-traded fund (ETF) that invests in stocks or other securities that pay dividends. These funds often focus on dividend-paying companies, such as large, stable corporations with a track record of consistent dividend payments.
By investing in dividend funds, investors can receive income from the dividends paid out by those companies. This income can supplement savings and provide a steady stream of income over time - particularly for retired investors who no longer have an earned salary.
Besides the dividend payments, investors can also benefit from potential capital gains as the share prices of dividend-paying companies increase over time. This provides a potentially powerful combination of income and growth that can help build wealth over a long period.
Pros and Cons of Dividend-Paying Stocks
When it comes to investing in dividend-paying stocks, there are both pros and cons that should be considered. Below are some of them.
- Regular cash flow – Dividend-paying stocks are a great way to generate some passive income. By investing in these stocks, investors can receive regular payments from the company’s profits.
- Low risk – Another benefit of dividend-paying stocks is that they tend to have lower volatility than other types of investments, which makes them a safer option for investors who want to limit their risk.
- Long-term appreciation – Dividend-paying stocks also have the potential to appreciate in value over the long term, as companies increase their dividends and reinvest profits into growing their business.
- Low returns – While dividend-paying stocks may be less volatile than other assets, they also offer lower returns.
- Tax implications – Dividend payments above your personal allowance are considered taxable income, so investors may need to pay taxes on these earnings.
- Uncertainty – Dividend-paying stocks can be dependent on the company’s performance; if the company isn’t doing well, investors may not receive any dividend payments.
Best Platforms to Invest in Dividend Funds
Below are some of the best investment platforms where you can get started with investing in dividend funds.
1. FreeTrade – Best for commission-free investments
Account minimum deposit | £0 |
|---|---|
Commissions | £0 |
Account fee | Standard plan (£4.99 per month)Plus plan (£9.99 per month) |
Account types | General investment accounts, stocks and shares ISAs, SIPPs |
Investment types | Stocks and shares, ETFs, investment trusts, and REITs |
App | Yes |
Freetrade is a great choice for investors looking to access a low-cost trading platform, as it charges no commission on share trading and no platform fee for basic plan holders.
For those with larger portfolios, the standard and plus plans offer more features, including access to over 6,000 shares and ETFs, as well as fractional shares.
The standard plan includes an ISA and access to over 6,000 shares, while the plus plan provides investing in a SIPP, access to a wider range of investments, as well as dedicated customer service support.
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
 | 7.6 | Visitfreetrade.io | The value of your investments can go down as well as up and you may get back less than you invest. |
2. Interactive Investor – Best for ready-made portfolios
Account minimum deposit | £0 |
|---|---|
Commissions | £0 |
Account fee | £4.99 |
Account types | Trading accounts, stocks and shares ISAs, junior ISAs, cash savings, SIPPs |
Investment types | ETFs, bonds, IPOs, investment trusts |
App | Yes |
Interactive Investor offers a comprehensive range of more than 40,000 UK and global investment products and services, including over 1,000 funds grouped by in-house experts for customers to choose from. These include:
Quick Start Funds – A straightforward and low-cost investing option, perfect for those just starting out with investments;
Super 60 – A carefully chosen selection of quality investments, suitable for various types of portfolios;
Ace 40 – The UK's first-rated list of responsible investments, tailored to align with personal values;
Model Portfolios – Five expertly selected and managed portfolios that help you achieve your financial goals.
3. IG – Overall Best Platform
Account minimum deposit | £0 |
|---|---|
Commissions | Variable |
Account fee | £0 |
Account types | General investment accounts, stocks and shares ISAs, SIPP |
Investment types | Forex, CFDs, cryptocurrencies, ETFs, bonds, commodities |
App | Yes |
With over 5,400 ETF markets covering indices, sectors, commodities, and currencies, IG provides investors with the opportunity to diversify their portfolios with ease.
It also has an extensive selection of third-party API interfaces for more experienced traders who use sophisticated analytical software or require access to high-frequency trading strategies. Furthermore, IG‘s smart portfolios make investing easy by providing expertly managed portfolios with exposure to global markets.
If you're not sure where to start, IG's free screener can help narrow your search by allowing you to filter the available funds based on multiple criteria, including country, asset classes, performance, and sector.
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
 | 8.9 | Visitig.com | Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. |
While there is no guarantee of safety when it comes to investing, trading platforms generally come with built-in security features that are intended to protect your investments. Many of these security measures include two-factor authentication and encryption protocols to keep your information secure.
Furthermore, most platforms are subject to FCA regulations, which require financial firms to operate in accordance with strict standards of conduct and risk management. One way to ensure your investments are as safe as possible is to use a platform that is covered by the Financial Services Compensation Scheme (FSCS). The FSCS provides compensation in the event that a dividend fund trading platform fails and you lose some or all of your funds.
