If your main goal from investing in the stock market is to collect a dividend each month, that's not a difficult task. There are many dividend stocks to choose from, but buying them individually may not be ideal, as each of them carries its own individual risk. You'll also have to consider each of their payout ratios, financials, and respective valuations.
This is where investing in an exchange-traded fund (ETF) makes a lot of sense, as it can drastically simplify your strategy. By finding a couple of dividend-paying ETFs, you can get plenty of diversification and much more safety than just picking stocks individually.
The Schwab U.S. Dividend Equity ETF (SCHD 0.21%) is an excellent example of a well-balanced fund that invests in around 100 high-quality dividend stocks. It pays 3.8%, which is more than three times the S&P 500 average of 1.1%, and its expense ratio is extremely low at 0.06%. It invests in quality stocks that have safe and sustainable payouts, as it factors in fundamental strength and financial ratios in its criteria.
But if you're looking for a monthly dividend, this is where you might be disappointed -- this ETF pays every quarter. Instead, you may want to consider the following two funds, both of which offer high yields and pay every month.
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WisdomTree U.S. High Dividend Fund
The WisdomTree U.S. High Dividend Fund (DHS +0.09%) not only yields a high amount at 3.3%, but it also makes distributions to investors each and every month. That can give you a much more consistent stream of cash flow than investing in the average dividend stock that pays quarterly.
With this ETF, you're also getting exposure to many more stocks. The WisdomTree fund had 365 holdings as of the end of September. Its largest holding, Johnson & Johnson, accounts for about 6% of its overall portfolio. It's a fairly diverse ETF with healthcare, financials, consumer staples, and energy stocks making up the lion's share, representing 72% of the entire portfolio.
NYSEMKT: DHS
Key Data Points
The one drawback is that its expense ratio is a bit higher at 0.38%. However, that's in line with other ETFs, and on a $10,000 investment, that would still amount to a fairly modest fee of $38 per year.
Invesco S&P 500 High Dividend Low Volatility ETF
Another good option for income investors to consider is the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD 0.52%), which yields an even higher rate of just over 4%. Its expense ratio of 0.30% is also slightly lower than the WisdomTree ETF.
In addition to making monthly distributions, what I like about this fund is its focus on low-volatility stocks that also pay high yields. This can enable you to generate high dividend income while also keeping your risk relatively low in comparison to the overall market.
NYSEMKT: SPHD
Key Data Points
This fund has a much smaller portfolio, containing just 50 stocks. It's a more carefully crafted group of companies, but that doesn't mean your risk to any individual stock is high. In fact, its largest holding, Pfizer, accounts for just 3% of the ETF's total net assets. And all of its top 10 holdings individually make up at least 2.4% of the entire portfolio.
Real estate, consumer staples, utilities, healthcare, and financials are the largest sectors in this fund. They each account for at least 10% of the holdings, and together, they represent just under 79% of the overall portfolio. Its focus on stable, low-risk sectors makes the ETF a relatively safe investment to hold, which is why it can be an ideal option for income-seeking investors to hang on to for the long haul.
