If you want to collect dividend income, there are a lot of important factors to consider when selecting stocks to buy. In addition to yield and payout ratio, you may also want to consider cash flow and the company's long-term growth prospects and overall financial health.
It can be difficult to find a solid income stock that offers a high yield and is also safe. Rather than going through what can be a time-consuming process in finding a quality dividend stock, an easier option is to just invest in a top exchange-traded fund (ETF) focused on dividend stocks that has effectively done the work for you.
A couple of ETFs that income investors are likely to love are the Vanguard High Dividend Yield Index Fund ETF (VYM 0.78%) and the Invesco S&P 500 Pure Value ETF (RPV 0.10%). Here's a breakdown of each fund and why it can be an ideal option for your portfolio today.
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Vanguard High Dividend Yield Index Fund ETF
As its name suggests, the Vanguard High Dividend Yield Index Fund ETF offers an attractive yield of 2.4%, which is more than double the S&P 500 average of 1.1%. Vanguard funds are also synonymous with low fees, and this ETF is no exception to that, as its expense ratio is just 0.06%. That means even if you invested $100,000, your annual fees would be just $60 per year.
You'll get plenty of diversification with this investment. The fund invests in over 560 stocks, giving you broad reach into many sectors. Financials, technology, healthcare, and industrials account for 61% of its entire portfolio. Blue chip dividend stocks such as ExxonMobil, JPMorgan Chase, and Procter & Gamble are among its top 10 holdings.
NYSEMKT: VYM
Key Data Points
The ETF has averaged a beta of 0.76 over the past five years, indicating that it can be a good low-volatility investment to hang on to. This can be key for investors who want to collect a dividend and not worry about significant fluctuations in value. Over the past 12 months, the fund has risen by 12%, slightly underperforming the S&P 500 and its gains of 13.8% during that period. On a total return basis, the performances tighten, with the etf up 14.2% to the S&P 500's 14.8%.
Invesco S&P 500 Pure Value ETF
Another high-yielding fund that can be an excellent option for income investors is the Invesco S&P 500 Pure Value ETF, which yields 2.5%. It's smaller in scope, as it had 123 holdings in its portfolio as of Jan. 16. It also has a higher expense ratio of 0.35%.
However, the fee may be well worth it. The fund carefully selects the stocks for its portfolio using a scoring system that enables it to focus on deep value stocks within the S&P 500. This can be key in keeping your investment safe if there is a downturn in the markets, as value stocks may possess much less downside risk compared to other stocks.
Ford Motor Company, Humana, and Tyson Foods are some of the more prominent names among its top 10 holdings. But with its largest holding accounting for just 2%, there isn't significant exposure to any one stock in this ETF. The sectors it invests heavily in are also fairly stable ones -- financials, healthcare, consumer staples, and materials. Together, they represent 64% of the fund's holdings. Meanwhile, tech stocks account for less than 2%.
NYSEMKT: RPV
Key Data Points
Over the past 12 months, the ETF has risen by 15.5% (17.4% total return) and proven to be a solid investment even as it focuses on low-risk value stocks and dividend income. For long-term investors, this can be a dependable income-generating investment to hang on to for the long haul.
