Dividend investing is awesome. The ultimate goal is to build a portfolio of dividend stocks that pay you enough cash to cover your living expenses while diversifying so that the payouts come from many companies. That way, you're not in trouble if one of them falters.
But doing this with individual stocks can take years (and a lot of money). Fortunately, there are shortcuts. High-quality exchange-traded funds (ETFs) can offer simple diversification with just a few ticker symbols. When you buy an ETF, one share gives you tiny slices of ownership in tens of companies -- sometimes hundreds.
Here are three ETFs with sizable dividends from a diversified mix of U.S. blue chip stocks, international companies, and real estate assets. With such diversity, you can hold them forever. The best part is that you can buy all three for under $500!
Read on to learn more:
1. Impressive and immediate dividends from the top U.S. companies
It won't take long for anyone researching dividend ETFs to run into the Schwab U.S. Dividend Equity ETF (SCHD 0.42%). It's one of the market's most popular dividend ETFs for good reasons.
First, it offers immediate income with a 3.5% distribution yield today. The ETF comprises 101 individual companies, primarily blue chip dividend stocks with established business models and track records.
In recent years, the U.S. stock market has increasingly concentrated on the "Magnificent Seven" stocks, but the Schwab U.S. Dividend Equity ETF has only 8.7% exposure to technology. Instead, it leans into other sectors, with financials, healthcare, consumer staples, industrials, and energy all having double-digit weightings.
To its credit, the Schwab U.S. Dividend Equity ETF is no slug. It tracks the Dow Jones U.S. Dividend 100 index but has admirably competed with the S&P 500 index over the past decade. That's without significant technology exposure (the S&P 500 has about 30% invested in the tech sector) and a far larger dividend yield (1.3% versus 3.5%).
2. International dividend stocks can help you diversify
It's hard for U.S. investors to step outside the domestic market. They may know some international companies, but it can quickly become confusing trying to understand foreign markets, industries, and companies that report in other currencies. Plus, the stocks might not trade on major U.S. exchanges. Consider hitting the easy button and investing in an ETF like the Vanguard International High Dividend Yield ETF (VYMI 0.72%).
The ETF contains 1,491 individual stocks from all over the world and throughout virtually every industry. You'll even recognize some of the fund's top holdings, like Toyota, Nestlé, Roche, Shell, and Novartis. No stock makes up more than 1.79% of the fund; it's hard to get more diversified than that.
With so many companies and currencies involved, the Vanguard International High Dividend Yield ETF doesn't pay a smooth dividend; it can fluctuate. Today, the ETF yields approximately 4.3% at its current price.
A diverse portfolio should extend beyond the U.S. markets, and this ETF is a simple and effective way to check that box.
3. Become a real estate investor with this one ETF
Real estate is another notoriously complex industry where investors can make things easier with an ETF. Anyone looking for real estate exposure should consider the Vanguard Real Estate ETF (VNQ 1.09%). The fund primarily focuses on real estate investment trusts (REITs). These publicly traded companies acquire and lease real estate and distribute their earnings to shareholders.
REITs often specialize in a particular type of real estate. The Vanguard Real Estate ETF owns REITs in many markets, including data centers, healthcare, hotels and entertainment, industrial properties, retail buildings, self-storage facilities, telecom sites, apartment complexes, and more. Without an ETF like this, individuals would never have such widespread real estate exposure in their portfolios.
The Vanguard Real Estate ETF pays quarterly distributions consisting of dividend income, return of capital, and capital gains. The adjusted yield (distributions net of all income and returns) is about 2.6% today. Most investors probably wouldn't go all in on real estate, but a diverse portfolio should include some. This ETF is a great way to accomplish that goal.
