Investing in the stock market isn't all about trying to find the next big growth stock or swinging for the fences, hoping for a massive return. Many investors don't want to turn investing into a job that requires constantly monitoring stocks. They simply want investments that can generate recurring cash flow for years to come.
A good way to accomplish that is by investing in exchange-traded funds (ETFs) which can allow you to do that easily. Not only can you quickly diversify your portfolio through ETFs, but some of them also offer attractive yields.
The ETFs listed below focus on blue chip dividend stocks and offer high yields. For long-term investors who don't want to worry about the market, these can be safe investments to buy and forget about.
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Schwab U.S. Dividend Equity ETF
The Schwab U.S. Dividend Equity ETF (SCHD +0.25%) pays a yield of 4%, which is fairly high for such a diversified investment. By comparison, the average yield on the S&P 500 is just 1.4%.
Another great feature of this fund is that its expense ratio is fairly low at just 0.06%, which ensures that fees don't chip away at your overall returns.
The stocks selected for the fund pay dividends and have strong financials. Some of the fund's top holdings include Coca-Cola, Verizon Communications, and Home Depot. These are the types of big-name stocks that you can feel comfortable hanging on to for the long haul, and which can generate recurring dividend income for your portfolio along the way.
The majority of the stocks are in energy, consumer staples, and healthcare, with those three sectors accounting for about 56% of the entire portfolio. In total, there are currently 103 holdings in the ETF.
If you just want a good buy-and-forget investment that provides you with plenty of dividend income, the Schwab fund can be an excellent option. Over the past year, its total returns (which include dividends) are modest but stable at around 4%. While that trails the S&P 500 and its 13% performance over the same time frame, in return, you get a fairly diversified investment that doesn't contain as much risk as the overall market.
Vanguard High Dividend Yield Index Fund ETF
A more diversified ETF to consider is the Vanguard High Dividend Yield Index Fund ETF (VYM +0.19%), which has nearly 600 stocks in its portfolio. This is also a low-cost fund whose expense ratio is 0.06%. Its yield is, however, slightly lower at right around 3%, but that is still above average.
There can be a bit less risk and volatility with this ETF simply because there are more holdings, which means that there's less vulnerability to how a single stock performs in the fund. The largest holding in the ETF is Broadcom, which accounts for 4% of the fund's total weight. Other recognizable names include JPMorgan and ExxonMobil.
The Vanguard fund's main three sectors are financials (20%), healthcare (14%), and industrials (13%). In the past 12 months, this ETF's total returns are just under 11%, making it the best-performing fund on this list.
iShares Core High Dividend ETF
Rounding out this list is the iShares Core High Dividend ETF (HDV 0.30%). At just over 8%, its total returns over the past year put it in the middle of the pack. But overall, it's the same story: Investors are sacrificing some returns with these ETFs in exchange for safety. They can help protect you and make your portfolio less susceptible to large declines, but they usually underperform the market when it is doing well.
With the iShares ETF, you'll be collecting a yield of 3.5%. It has a slightly higher expense ratio than the other two ETFs listed here at 0.08%, but the difference is minor and won't have a drastic effect on your overall returns.
The fund is a bit more concentrated with 75 holdings in its portfolio. The focus is on high-quality dividend stocks, with a bit less diversification. ExxonMobil, Johnson & Johnson, and Progressive, which are its three top holdings, make up more than 18% of the ETF's overall weight. Consumer staples, energy, and healthcare are the three largest sectors here, representing close to 60% of the ETF's overall portfolio.
All three of the ETFs listed here can be great options for income investors for the long haul. You get some excellent diversification, incur low fees, and collect fairly high yields.
