Dividends can be a great way to boost your overall portfolio returns and generate capital to save, reinvest, or otherwise put to work as you desire. You can choose shares of individual income stocks or use dividend exchange-traded funds (ETFs) that provide access to an entire basket of dividend stocks.
If you're considering dividend ETFs for your portfolio right now and have $1,000 to put to work, here are two options to consider.
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1. Schwab U.S. Dividend Equity ETF
The Schwab U.S. Dividend Equity ETF (SCHD 0.49%) tracks the performance of the Dow Jones U.S. Dividend 100 index, which tracks the performance of 100 high-yield U.S. dividend stocks. As such, the ETF typically invests in about 100 stocks across various sectors like energy, consumer staples, healthcare, technology, and industrials.
Some of the top holdings of this fund include Chevron, ConocoPhillips, PepsiCo, Amgen, Cisco, Merck, and AbbVie. It also has positions in Target, General Mills, Paychex, and Lockheed Martin.
The Schwab U.S. Dividend Equity ETF is built around companies that have paid dividends for at least 10 consecutive years and possess the financial strength to continue doing so. That underlying emphasis on quality and strong fundamentals helps create a more resilient and potentially stable portfolio that has paid off big for investors through the years.
The ETF contained about $69 billion in total assets at the time of this writing, with an expense ratio of 0.06%. Considering that the average expense ratio for ETFs is in the ballpark of 0.1%, an expense ratio of 0.06% falls nicely below this average.
It's worth noting that the Schwab U.S. Dividend Equity ETF is passively managed since it aims to replicate the performance of its chosen index rather than having a manager actively selecting and trading stocks. In general, passively managed ETFs tend to have lower expense ratios compared to actively managed funds because they don't require the same level of research and trading activity.
The ETF also offers a yield of about 3.85%, notably higher than the average S&P 500 stock (1.3%). With a total 10-year return including dividends of about 200%, and its payout spiking by 160% in that time frame, the Schwab U.S. Dividend Equity ETF looks like a no-brainer buy for income-seeking investors who want to put cash into a basket of high-quality companies and hold it forever.
2. Vanguard Dividend Appreciation ETF
The Vanguard Dividend Appreciation ETF (VIG 0.54%) tracks the performance of the S&P U.S. Dividend Growers index, which replicates the performance of large U.S. companies that have consistently increased their dividends for at least 10 consecutive years. The top industry weightings in the Vanguard Dividend Appreciation ETF include technology, financial services, healthcare, consumer defensive, and industrials.
The fund had total net assets of $109.6 billion at the time of this writing and contains 337 stocks with a median market cap of $226 billion. Most of the stocks in the ETF are large-cap companies (78% to be exact), while only about 2.7% are small caps. Some of the major names that represent the most significant holdings in the ETF include Microsoft, Apple, Eli Lilly, and Visa.
Its current yield is relatively low compared to some other dividend ETFs (around 1.65%) because it prioritizes dividend growth over initial high payouts or the highest yields. Many of the underlying companies are growth-focused stocks that offer the potential for consistent capital appreciation alongside dividend income. Its current expense ratio of 0.05% is on the low end, making it accessible to a much wider group of investors.
The Vanguard Dividend Appreciation ETF has delivered a total return of about 240% over the trailing 10 years, while its dividend has increased by about 97%. For investors seeking long-term, reliable income through exposure to high-quality, large-cap U.S. companies with a demonstrated track record of increasing their dividends, this ETF could warrant a long-term portfolio position.
