If you want to be invested in stocks but don't want to spend time becoming a great stock analyzer and picker, consider exchange-traded funds (ETFs). They're essentially funds that work much like stocks, permitting you to buy as few or as many shares as you want via your brokerage.
And if you're in or approaching retirement, you might give particular attention to dividend-focused ETFs, for the income they can provide. Heck, even those far from retirement can be well served by dividend ETFs. After all, that income doesn't have to be spent on retirement living expenses. It can simply be reinvested in more stock.
Image source: Getty Images.
Here, then, are some dividend ETFs to learn more about and consider for your portfolio.
Seven contenders
First, here's a look at how they compare against each other:
|
ETF |
Recent Yield |
5-Year Avg. Annual Return |
10-Year Avg. Annual Return |
|---|---|---|---|
|
SPDR S&P 500 ETF (SPY 0.95%) |
1.4% |
15% |
11.8% |
|
Vanguard Dividend Appreciation ETF (VIG 0.10%) |
1.8% |
13.6% |
10.7% |
|
SPDR S&P Dividend ETF (SDY -0.32%) |
2.6% |
9.7% |
9.4% |
|
iShares US Real Estate ETF (IYR 0.16%) |
3.1% |
3.9% |
9.9% |
|
Schwab U.S. Dividend Equity ETF (SCHD -0.10%) |
3.6% |
13.8% |
11.1% |
|
iShares Preferred & Income Securities ETF (PFF 0.16%) |
6.8% |
3.2% |
3.9% |
|
JPMorgan Equity Premium Income ETF (JEPI 0.30%) |
7% |
N/A* |
N/A* |
Source: Morningstar.com.
*Fund is relatively new, with an inception date of 5/20/2020.
You might now want to jump into the one(s) with the steepest dividend yields, but hold on. Be sure to learn more about any ETFs you're considering. Examine their "expense ratio" (essentially their annual fee) and learn more about how the money in the fund is invested. Many, for example, are index funds, tracking a particular well-defined group of securities.
Here are some initial things to know about the funds above.
1. SPDR S&P 500 ETF
This is a basic S&P 500 index fund, aiming to hold the same stocks that are in the benchmark index of 500 of America's biggest and best companies. (Indeed, the total value of the companies in the index represents about 80% of the entire value of the U.S. stock market.) This ETF isn't exactly a dividend ETF, but many of its components are dividend payers, so it, too, offers a payout. If you want to keep your investing as simple as possible, it's reasonable to just stick with a low-fee S&P 500 index fund, like this one. (Annual fee: 0.0945%.)
2. Vanguard Dividend Appreciation ETF
This ETF is more focused than a broad S&P 500 index fund. It tracks, instead, the S&P U.S. Growers Index, which is focused on companies that have increased their dividend for at least 10 consecutive years. It also excludes stocks with very steep yields, as a high yield can be due to a depressed stock price and a struggling company. It recently held about 314 different stocks. (Annual fee: 0.06%.)
3. SPDR S&P Dividend ETF
This ETF is even more demanding than the last one, requiring its component companies to have upped their payouts for at least 20 consecutive years. Thus, it has fewer components -- recently, there were 121 stocks in it. (Annual fee: 0.35%.)
4. iShares US Real Estate ETF
Many retirees like to invest in real estate investment trusts (REITs), because they often pay meaningful dividends. REITs are companies that buy and lease out many properties, and they will frequently focus on certain niches such as apartments, retail outlets, storage facilities, industrial buildings, medical centers, and so on. REITs trade like regular stocks and are required to pay out at least 90% of their earnings as dividends. Not surprisingly, for those who don't want to select REITs on their own, there are ETFs that are focused on REITs. (Annual fee: 0.40%.)
5. Schwab U.S. Dividend Equity ETF
This ETF tracks the Dow Jones U.S. Dividend 100 Index -- which encompasses 100 stocks that have a track record of paying dividends for at least 10 years and which also bear some marks of financial health. Financial health is important, as shareholders will want those dividends to keep being paid. (Annual fee: 0.06%.)
6. iShares Preferred & Income Securities ETF
This ETF has a ticker symbol, PFF, that's fun to pronounce, and it is also a hefty dividend payer. That's because it's focused not on regular "common" stock, but on preferred stocks. Preferred stocks will generally pay a fixed dividend, not one that you can hope will be increased annually, as many common-stock dividend payers do. Their dividends are often well above average, but there's a trade-off, as their stock prices generally don't appreciate very rapidly. Still, if you're seeking income, consider preferred stocks -- and learn more about them. (Annual fee: 0.46%.)
7. JPMorgan Equity Premium Income ETF
Finally, this ETF offers another hefty dividend yield, and it's a bit unusual, too. The ETF holds about 115 different stocks, which make up the bulk of its total value. And on top of that, it uses covered calls, a kind of option strategy, to add to its performance. Dig much deeper into this ETF if it interests you, as its performance can vary along with the economic environment. (Annual fee: 0.35%.)
ETFs can be wonderful portfolio components for you. These are just some of many solid dividend ETFs out there. A little time spent digging around online will turn up more contenders for your income-generating portfolio.
