You can generate a lot of recurring cash flow from the stock market without having to worry about selling your investments. By investing into dividend stocks and income-generating assets, you can have a steady stream of cash flow that you can rely on to bolster your financial position and help pay bills along the way.
The more you invest in the stock market, the greater the potential there is to collect a lot of cash via dividends. To generate at least $2,000 in annual dividends, you'll probably need to invest around $40,000 or more to ensure you aren't relying heavily on risky stocks with extremely high yields. When you're investing so much money, it's important to reduce your overall exposure to the stock market. And one way to do so is to invest in exchange-traded funds (ETFs) that have high yields, as they can ensure you're collecting a lot of dividend income while also having some valuable diversification.
The following three ETFs can be suitable options to consider if your primary goal is to maximize your dividend income: Schwab U.S. Dividend Equity ETF (SCHD 0.72%), Invesco High Yield Equity Dividend Achievers ETF (PEY 1.14%), and iShares International Select Dividend ETF (IDV 0.68%). Here's how much you would have to invest in each one of these ETFs to collect $2,000 in annual dividends.
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Schwab U.S. Dividend Equity ETF: $50,000
The Schwab U.S. Dividend Equity ETF yields around 4% today, which means that it would take an investment of approximately $50,000 to be able to generate $2,000 in annual dividends. While that may be a lot of money, a well-diversified fund like this can be a relatively safe place to invest a big chunk of your money for the long haul.
This low-cost ETF charges an expense ratio of just 0.06% and it has a low beta of around 0.8, which means that it isn't as volatile as the overall market. Over the past 12 months, it has risen by a relatively steady 3%. There are 103 stocks in its portfolio (as of June 24), with a heavy focus on energy, consumer staples, and healthcare stocks, which together account for close to 56% of its overall holdings.
The fund focuses on having a diversified portfolio and selects stocks based on their fundamental strength to ensure their dividends are sustainable. Some of its top holdings include Chevron, ConocoPhillips, and Cisco Systems.
Due to its broad diversification and relatively high yield, the Schwab fund can be an excellent buy-and-forget option for divided investors to hang on to for years.
ETF returns data by YCharts
Invesco High Yield Equity Dividend Achievers ETF: $43,500
It'll take a bit of a smaller investment into the Invesco High Yield Equity Dividend Achievers ETF to generate $2,000 in annual dividend income given its higher yield of 4.6%. As its name suggests, this ETF focuses on stocks that provide investors with attractive yields. And it also prioritizes stocks that have consistently increased their payouts over the years.
The fund comes with a higher expense ratio of 0.53%, but that may be worth the cost given its carefully selected dividend stocks. There are 52 holdings in the fund as of June 20, and they include high-yielding stocks such as Pfizer, United Parcel Service, and Verizon Communications -- they all yield more than 6%.
The Invesco fund has also been a relatively stable investment to hang on to over the past year, rising by 3% over that stretch. It focuses on sectors that have good long-term stability, with financials, utilities, and consumer staples making up 57% of its portfolio.
iShares International Select Dividend ETF: $39,200
The highest-yielding ETF on this list is the iShares International Select Dividend ETF, which pays approximately 5.1%. At that rate, you'll need to invest about $39,200 to be able to collect $2,000 in annual dividends. That's a fairly high yield for a diversified ETF such as this. This fund charges an expense ratio of 0.49%, which isn't the cheapest option available but it's comparable to the Invesco ETF.
The key differentiator with this fund is its focus on international stocks, making it an ideal option if you want exposure outside of the U.S. market. Perhaps if you're not feeling optimistic about the U.S. economy or just for the sake of having some geographical diversification, this ETF can help you achieve either one of those goals.
Stocks based out of the United Kingdom, Italy, France, and Spain account for roughly half of the ETF's total holdings. Similar to the Invesco fund, the iShares ETF also prioritizes stocks in relatively safe sectors, including financials, utilities, and communication. There are 101 holdings in the fund (as of June 23), including British American Tobacco, Rio Tinto, and Vodafone.
This has been the highest-performing ETF on this list over the past 12 months, rising by 22% as many investors appear to be pivoting toward international stocks amid uncertainty in the U.S. markets. With this ETF, you can accomplish that while also generating plenty of dividend income along the way.
