Dividend stocks can be a great way to get income without sacrificing the potential for long-term growth, but choosing individual dividend stocks isn't the best option for everyone. Fortunately, there are some excellent exchange-traded funds (ETFs) with dividend yields that are significantly higher than the typical S&P 500 company's, and they can be a great choice for investors who want to create an income stream on autopilot.
Here are three high-dividend ETFs that long-term investors, as well as those seeking current income, might want to take a closer look at.
A great all-around dividend ETF
If you're looking for a solid high-dividend ETF full of quality stocks, it's tough to make a case against the Vanguard High Dividend Yield ETF (VYM 0.02%). With a rock-bottom 0.06% expense ratio, this fund tracks an index of stocks that pay above-average dividend yields, specifically excluding real estate investment trusts, or REITs.
NYSEMKT: VYM
Key Data Points
As of this writing, the Vanguard High Dividend Yield ETF has 556 stocks in its portfolio. Top holdings include JPMorgan Chase (JPM +2.08%), Broadcom (AVGO 1.74%), ExxonMobil (XOM +0.85%), and Procter & Gamble (PG 1.66%), just to give you a sense of what you'd be investing in.
With a 3% yield as of this writing, the Vanguard High Dividend Yield ETF isn't the highest-yielding dividend ETF in the market. But it's a great combination of income and long-term growth potential that could be a good fit for long-term investors.
A beaten-down sector at a discount
Real estate has been one of the worst-performing sectors over the past couple of years. Since real estate investment trusts, or REITs, are extremely sensitive to rising interest rates, that's not a surprise. Rising rates tend to put pressure on income-focused stocks, and since most REITs rely on borrowed money for growth, this makes the cost of capital less attractive as well.
However, REITs are largely doing just fine, business-wise. And the Vanguard Real Estate ETF (VNQ +0.36%) can be a great way to invest in them. The ETF tracks an index of about 160 real estate stocks, and its top holdings include Prologis (PLD 0.05%), American Tower (AMT 0.38%), and data center giant Equinix (EQIX +1.37%), just to name a few. As of this writing, the Vanguard Real Estate ETF has a 4.3% dividend yield, and if rates start to come down later this year as many expect, it could be a positive catalyst for the ETF's share price.
An even higher yield from top-quality companies
If you're looking for a high yield from top-notch businesses, the SPDR Portfolio S&P 500 High Dividend ETF (SPYD +0.30%) could be a good fit for you. This low-cost index fund invests in the 80 highest-yielding companies in the S&P 500. The key differences between this ETF and the Vanguard High Dividend Yield ETF are:
- The SPDR ETF focuses on the highest-yielding stocks in the benchmark index, not just those that have above-average yields.
- The SPDR ETF, by definition, only invests in large-cap companies, while the Vanguard ETF includes stocks that aren't components of the S&P 500.
- The SPDR ETF doesn't exclude REITs, while the Vanguard ETF specifically does. If a REIT is an S&P 500 component, it can be included in this fund's index. In fact, the largest holding of the ETF is real estate investment trust Iron Mountain (IRM +2.04%), and real estate makes up 28% of the ETF's assets.
Because of these differences, this is a much higher-yielding ETF. As of this writing, the SPDR Portfolio S&P 500 High Dividend ETF has a 4.6% yield.
Which is best for you?
There's no perfect favorite here. All three of these are rock-solid dividend stock ETFs with above-average yields and long-term upside potential. The best choice for you depends on your specific income needs and personal investment goals.
