3 Small-Cap ETFs That Pay Dividends and Beat the Russell 2000 Over Five Years
The Russell 2000 is the standard benchmark for small-cap investing, but three dividend-paying funds quietly left it behind over five years using very different methods to weed out the index's weakest companies.
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From November 3, 2021 through November 3, 2026, the Vanguard Russell 2000 ETF (NASDAQ:VTWO) returned 26% on a total-return basis. Over the same period, three dividend-paying small-cap funds did better. The WisdomTree U.S. SmallCap Dividend Fund (NYSEARCA:DES) returned 37%, and the Schwab U.S. Small-Cap ETF (NYSEARCA:SCHA) returned 31%.
The iShares Core S&P Small-Cap ETF (NYSEARCA:IJR) returned 30%. Their trailing yields run from 1.1% to 2.3%.
Only one of the three is actually built around dividends. DES picks and weights its stocks by the cash they pay out. SCHA and IJR are broad small-cap index funds, and their yields sit at or a bit below the Russell 2000 fund’s 1.2%. What all three have in common is the set of companies their indexes leave out.
| Fund | 5-Year Total Return | 1-Year Total Return | Trailing Yield | Payments Per Year |
|---|---|---|---|---|
| DES | 37% | 24% | 2.3% | 12 |
| SCHA | 31% | 20% | 1.1% | 4 |
| IJR | 30% | 22% | 1.2% | 4 |
| VTWO (Russell 2000) | 26% | 15% | 1.2% | 4 |
WisdomTree’s Dividend Weighting Opened the Widest Lead
DES follows the WisdomTree U.S. SmallCap Dividend Index. That index holds only small companies that pay regular cash dividends, and it reweights them once a year according to each company’s projected share of total cash dividends. So a company has to produce enough cash to pay shareholders before it can get in, and the more it pays, the larger its position. Pre-revenue biotech and cash-burning startups are kept out by design.
This approach gives the fund a clear value tilt, and Morningstar places it in the Small Value category. The fund has the best record on this list in both periods: 37% over five years and 24% over the past year, against 15% for the Russell 2000 fund.
Income is the clearest difference. DES yields 2.3% and made 12 monthly distributions over the past year.
The amount varies each month. October’s payment was $0.05, down from $0.12 in September, and December 2025 brought a larger year-end payout of about $0.21. Anyone relying on the income should plan for checks that vary in size (if a steadier schedule matters, we rounded up seven monthly payers with more predictable distributions in a free report here).
The costs are real. Its 0.38% expense ratio is the highest of the three, and with about $2 billion in assets, it is much smaller than the others. Morningstar calls its exposure “defensive yet inconsistent,” which means it will fall behind when speculative growth stocks lead the market.
Schwab’s Broad Index Wins on Breadth and Cost
SCHA follows the Dow Jones U.S. Small-Cap Total Stock Market Index, which covers U.S. companies ranked by size from roughly 751 through 2,500. It is weighted by market cap and has no earnings test. Its holdings put clinical-stage drug developers next to established industrial companies.
Diversification is where it stands out. Its largest disclosed position made up only about 0.6% of net assets, so no single company can do much damage. The fund manages about $23 billion.
It returned 31% over five years and 20% over one year. Its yield, 1.1%, is the lowest of the group and a bit below the Russell 2000 fund’s, paid out in four quarterly distributions. It owns plenty of unprofitable companies, so in a sell-off it will act most like the Russell 2000 of the three.
iShares Requires Profits Before a Company Can Join
IJR tracks the S&P SmallCap 600. Its quality filter is the most explicit of the three. S&P requires a stock to have been profitable for four quarters before it is added to the index, though not to stay in it.
Cost is its other advantage. The 0.06% expense ratio is a small fraction of what DES charges, and with roughly $111 billion in net assets, it is one of the largest small-cap funds you can buy.
IJR returned 30% over five years, a hair behind SCHA, and 22% over the past year, ahead of SCHA. Its 1.2% yield, paid in four quarterly distributions, matches the Russell 2000 fund. Buyers get a profitability screen and very low fees. They do not get any extra income.
Why the Russell 2000 Fell Behind
The Russell 2000 ranks companies by size, weights them by float, and has no earnings requirement. As a result, it includes many money-losing companies and reaches down to some of the smallest stocks. In weak markets, those holdings drag on the index.
Each fund on this list cuts that weak tail in its own way. DES has the strictest filter because it requires actual cash payouts. IJR applies an earnings test at entry, and SCHA uses size limits. All three led the Russell 2000 fund over both one and five years. Neither period predicts the next, and stretches when unprofitable small caps rally hardest are exactly when these filters fall behind.
Small Caps Still Fall Hard
Small caps with a quality screen still swing sharply. With dividends reinvested, IJR lost about 16% in calendar 2022 and roughly 32% in 2008. Between the end of January and the end of March 2020, it fell about 30%.
Smaller companies react more to economic slowdowns and higher borrowing costs because they usually have thinner margins and less access to cheap financing. They have also gone through long periods of lagging large caps. Each of the three funds carries full stock market risk, and a yield between 1% and 2% offers little buffer when prices drop.
Matching the Fund to the Goal
If income is your priority, DES is the fund built for that goal. DES is the only one of the three designed around dividends, and its monthly payouts and stricter cash filter come with the highest fee. IJR offers a low-cost core holding with a profitability screen. SCHA does the job for the broadest small-cap exposure at minimal cost, treating dividends as a minor bonus.
Contact [email protected] for any questions or corrections.
Ryne Mauck is an investment writer covering exchange-traded funds, retirement planning, and portfolio strategy. Through his work at 24/7 Wall St. and other investment platforms, including Seeking Alpha, he aims to provide clear, research-driven insights that help investors make more informed decisions while maintaining a long-term approach to investing.
Ryne holds a B.Sc. in Finance and an M.A. in Political Science. He is a formerly registered Municipal Advisor Representative and has passed the Series 50, Series 63, and Series 65 exams. His articles are not intended to be, nor should they be interpreted as, financial advice.
