For income-focused investors, dividend exchange-traded funds (ETFs) can be a great way to balance risk and return. That's because they represent a basket of stocks -- meaning ETF investors have built-in diversification.
So, let's examine five dividend-themed ETFs that retirees might want to consider adding to their portfolios.
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1. Vanguard High Dividend Yield Index ETF
First on the list is the Vanguard High Dividend Yield Index ETF (VYM 0.14%). This ETF has everything income-oriented investors should look for in a dividend ETF.
The fund is linked to the Financial Times Stock Exchange High Dividend Yield Index, which tracks U.S. large-cap value stocks, and its current dividend yield is a decent 3.2%. Moreover, with top holdings such as ExxonMobil, Johnson & Johnson, and JPMorgan Chase, investors can sleep easy knowing the fund owns shares of iconic companies.
And the fund's expense ratio is a paltry 0.06% -- or $6 for every $10,000 invested.
2. Vanguard International High Dividend Yield ETF
Like its American-focused cousin, the Vanguard International High Dividend Yield ETF (VYMI 0.18%) tracks an index. In this case, it's an index of non-U.S. companies with high yields.
The fund's holdings include energy giants like Shell and TotalEnergies, drugmakers like Roche and Novartis, and financials such as HSBC and Royal Bank of Canada.
Its current dividend yield of 4.5% is impressive. But investors will pay more in fees, as its expense ratio is 0.3%.
3. Invesco S&P 500 High Dividend Low Volatility ETF
Another index-tracking ETF, the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD 0.31%), seeks high-dividend stocks from the S&P 500 that also have stable stock prices.
Consequently, top holdings include well-known cash cows like Altria, Verizon, AT&T, Dow, and Kinder Morgan. Unfortunately, as the fund's performance demonstrates, this hasn't been the year for these names. Share prices are down 9% year to date.
Nevertheless, this fund has an outstanding 4.4% yield and a reasonable 0.3% expense ratio.
4. SPDR Portfolio S&P 500 High Dividend ETF
Next on the list is the SPDR Portfolio S&P 500 High Dividend ETF (SPYD 0.37%). This fund offers a unique take on the high dividend category by owning the top 80 dividend payers in the S&P 500 (based on yield).
Moreover, it's equal-weighted, meaning the fund holds a nearly equal percentage of each of the 80 stocks. This results in a mid-cap and large-cap blend of holdings, including utilities like Southern Company and Edison International and consumer names like Darden Restaurants and Kimberly-Clark. Best of all, the fund has an expense ratio of just 0.07% and a yield of 4.9%.
5. JPMorgan Equity Premium Income ETF
Lastly, if you're looking to mix things up, this ETF is for you. The JPMorgan Equity Premium Income ETF (JEPI -0.05%) takes the high-dividend concept to another level.
The fund invests in American large-cap stocks but doesn't limit itself to high-dividend payers. Instead, you'll find tech giants like Microsoft, Amazon, and Alphabet in its top 10 holdings alongside Hershey, Mastercard, and Comcast.
Yet, the fund has an astounding 11.4% dividend yield -- so what gives?
The answer lies in how the fund operates. Rather than holding the stocks and simply collecting the dividends, the fund writes call options on its portfolio, thus collecting premium income throughout the year. Those premiums then go into paying the fund's gigantic dividend.
Since the fund collects option premiums on its holdings, investors give up some upside in exchange for that hefty dividend yield. They also pay an elevated expense ratio of 0.35%. But for investors looking for big dividend payouts, this fund is an excellent choice.
