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3 Dividend ETFs That Can Supercharge Your Savings

By Katie Brockman – Aug 18, 2021 at 6:00AM

Key Points

  • Dividend ETFs are investments that pay a portion of profits back to shareholders.
  • By investing consistently, those dividend payments can add up to a substantial source of passive income.
  • Not all ETFs are created equal, and some are better options than others.

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With the right investments, you can boost your savings and create a source of passive income that will last a lifetime.

Investing in dividend ETFs can be a great way to build a robust portfolio and create a source of passive income on the side.

Dividend stocks pay a portion of their profits back to shareholders in the form of a dividend, and over time, that money can add up substantially. The more shares you own, the more you'll receive in dividends. By investing consistently for as many years as possible, you can create a steady stream of passive income with this type of investment.

However, not all dividend ETFs are created equal, and it's important to look at the overall investment rather than the dividend payments alone. These three funds are strong options, and they can be a great addition to any portfolio.

Hand holding assorted U.S. cash.

Image source: Getty Images.

1. Vanguard Dividend Appreciation ETF (VIG)

The Vanguard Dividend Appreciation ETF (VIG 0.26%) includes 247 dividend-paying stocks from multiple industries, and it tracks the NASDAQ US Dividend Achievers Select Index.

With so many stocks from a wide variety of industries, this fund provides plenty of diversification and can help limit your risk. While all investments are subject to short-term volatility, when you're investing in many different stocks across multiple sectors, your money is more protected against stock market turbulence.

Since its inception in 2006, this ETF has earned an average rate of return of around 10% per year. If you were to invest, say, $400 per month while earning a 10% average annual return, you'd have around $790,000 after 30 years.

This fund also pays quarterly dividends of around $0.50 to $0.60 per share. While that may not sound like much, when you own hundreds or even thousands of shares after decades of investing, those dividend payments add up.

2. SPDR S&P Dividend ETF (SDY)

The SPDR S&P 500 Dividend ETF (SDY 0.33%) tracks the S&P High Yield Dividend Aristocrats Index, and it includes stocks from companies that have consistently increased their dividends every year for at least 20 consecutive years.

This fund also has a long track record, as it was established in 2005. It contains 112 stocks from a variety of industries, providing ample diversification.

Similar to the Vanguard Dividend Appreciation ETF, this fund has earned an average rate of return of around 10% per year since it was founded. It also pays a quarterly dividend of roughly $0.50 to $0.60 per share, and because its stocks have a history of increasing their dividends, your payments will likely increase over time.

3. iShares Core Dividend Growth ETF (DGRO)

The iShares Core Dividend Growth ETF (DGRO 0.21%) includes 389 stocks from a wide variety of industries, making it the most diversified fund on the list. It also provides exposure to stocks that have a history of increasing their dividends over time, making it a solid option for those who want to create a source of passive income.

This fund pays quarterly dividends of around $0.20 per share, which is lower than many other ETFs. However, it's also earned an average rate of return of around 13% per year since its inception in 2014. If you were investing $400 per month while earning a 13% average annual return, you'd have more than $1.4 million after 30 years.

Keep in mind, though, that the stock market has experienced an incredible bull market over the past decade, so these types of returns may not be sustainable. However, because this ETF includes solid stocks that will likely increase their dividends consistently, it's still a smart option for your portfolio.

Dividend ETFs can help you build a strong portfolio while also creating a source of passive income. With the right investments, you'll be on your way toward a more financially secure future.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.

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Stocks Mentioned

iShares Core Dividend Growth ETF Stock Quote
iShares Core Dividend Growth ETF
$51.82 (0.21%) $0.11
Vanguard Dividend Appreciation ETF Stock Quote
Vanguard Dividend Appreciation ETF
$157.17 (0.26%) $0.41
SPDR S&P Dividend Stock Quote
SPDR S&P Dividend
$131.15 (0.33%) $0.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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