Two of the best things in the investment world are index funds and dividend-paying stocks. So an even better thing, arguably, would be a dividend-focused index fund. Here's a look at a well-regarded index exchange-traded fund (ETF) that recently boasted a yield of 4%. (ETFs are funds that trade like stocks, making it easy to get in and out of them.)
I'll also offer for your consideration a more aggressive income-oriented ETF that recently sported a dividend yield of 11%. Check them out and see whether either or both would be a good fit for your portfolio. You can invest in either with less than $500 -- or with more.
Image source: Getty Images.
Appreciating dividend payers
Dividend-paying stocks used to be thought of by many people as mainly suitable for grandparents -- but that's increasingly not the case as more investors wake up to their appeal. Consider these eye-opening numbers.
|
Dividend-Paying Status |
Average Annual Total Return, 1973-2024 |
|---|---|
|
Dividend growers and initiators |
10.24% |
|
Dividend payers |
9.20% |
|
No change in dividend policy |
6.75% |
|
Dividend non-payers |
4.31% |
|
Dividend shrinkers and eliminators |
(0.89%) |
|
Equal-weighted S&P 500 index |
7.65% |
Data source: Ned Davis Research and Hartford Funds.
You can, of course, study the universe of stocks and carefully choose promising dividend-paying stocks for your portfolio. But you might instead make it easy on yourself by just investing in a good fund that does that work for you.
Meet the Schwab U.S. Dividend Equity ETF
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is a compelling pick for multiple reasons. Let's start with its expense ratio (annual fee), which is just 0.06%. That means you'll only pay $6 a year for every $10,000 you have invested in the fund.
The ETF tracks the Dow Jones U.S. Dividend 100 Index -- which encompasses 100 stocks with track records of paying dividends for at least 10 years and which also appear financially healthy. That last part, based on factors such as cash flow to total debt and return on equity, is important, because companies that aren't financially healthy may at some point need to reduce their dividends.
Here's how the fund has performed in the past.
|
Period |
Average annual gain |
|---|---|
|
Past 3 years |
4.58% |
|
Past 5 years |
12.76% |
|
Past 10 years |
10.47% |
|
Since inception (Oct. 20, 2011) |
12.19% |
Source: SchwabAssetManagement.com, as of May 8, 2025.
Pretty good, right? Note, though, that the next five or 10 years might feature lower (or higher) returns. The S&P 500 has averaged annual total returns of close to 10% (ignoring inflation) over long periods, and the past few years have featured higher-than-average returns.
Another thing to like about the fund is its relatively hefty dividend yield, recently 4%. Plunk $10,000 into this ETF and you can expect somewhere around $400 in dividends over the course of the next year. As the companies in the Dow Jones U.S. Dividend 100 Index grow over time, many of them will be increasing their dividends, so you can generally expect to collect more in dividend income from year to year.
So what's in this ETF? Here are its top 10 holdings as of May 8.
|
Stock |
Weight in ETF |
Recent yield |
|---|---|---|
|
Coca-Cola |
4.47% |
2.8% |
|
Verizon Communications |
4.43% |
6.2% |
|
Altria Group |
4.42% |
6.7% |
|
ConocoPhillips |
4.27% |
3.6% |
|
Lockheed Martin |
4.25% |
2.8% |
|
Home Depot |
4.06% |
2.5% |
|
Cisco Systems |
4.03% |
2.8% |
|
Chevron |
3.89% |
5.0% |
|
AbbVie |
3.84% |
3.5% |
|
Amgen |
3.77% |
3.5% |
Source: SchwabAssetManagement.com and Morningstar.com. Figures as of May 8, 2025.
These 10 holdings together make up about 41% of the ETF's value. About 20% of its assets are in consumer defensive stocks, 19% in energy stocks, and nearly 15% in healthcare stocks.
Meet the JPMorgan Equity Premium Income ETF
If you're looking for much more income from your investments, you might want to take a look at the JPMorgan Equity Premium Income ETF (JEPI +0.41%). It's fairly new, with an inception date of May 20, 2020, and it has drawn a lot of interest with its dividend yield, recently 7.8% (on a 12-month rolling basis).
As you might be starting to suspect, the JPMorgan Equity Premium Income ETF is not a standard dividend ETF. It claims to be the world's largest actively managed ETF (as opposed to being an index fund, or index ETF), and here's how it describes itself:
- Designed to provide current income while maintaining prospects for capital appreciation.
- Generates income through a combination of selling options and investing in U.S. large cap stocks, seeking to deliver a monthly income stream from associated option premiums and stock dividends.
- Seeks to deliver a significant portion of the returns associated with the S&P 500 Index with less volatility, in addition to monthly income.
So what's its strategy? Well, it holds lots of stocks (recently around 113) chosen by its managers. On top of that, it uses equity-linked notes and covered calls (a kind of option) to add to its performance.
Take a closer look at this ETF if it interests you. Understand that its performance can vary along with the economic environment. Its expense ratio is 0.35%, costing you $35 annually per $10,000 invested in the fund.
Whether you take the more straightforward route of investing for dividend income or you park some money in the JPMorgan ETF, be sure that you are saving and investing for retirement.
