If you’re in or near retirement, it’s smart to aim to hold a lot of dividend-paying stocks in your portfolio. (It’s smart at any age, really.) Dividend payers will regularly plunk cash into your account — a welcome event when you’re living on a fixed or otherwise limited income.
Better still, healthy and growing dividend payers tend to increase their payouts over time, often keeping up with or exceeding inflation. And by getting this regular dividend income, you may be able to avoid selling shares of stock.
One effective way to invest in dividend payers is via exchange-traded funds (ETFs). ETFs are mutual-fund-like securities that trade like stocks. You can easily buy or sell a few or many shares via your brokerage account, just as you would stocks. Here are six solid ETFs to consider that offer decent dividend yields.
ETF | Recent Yield | 5-Year Avg. Annual Return | 10-Year Avg. Annual Return |
|---|---|---|---|
iShares Preferred & Income Securities ETF (NASDAQ: PFF) | 6.49% | 2.62% | 3.45% |
Vanguard Real Estate ETF (NYSEMKT: VNQ) | 4.34%** | 3.02% | 5.42% |
Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) | 3.87% | 12.69% | 11.36% |
Vanguard High Dividend Yield ETF (NYSEMKT: VYM) | 2.86% | 10.47% | 9.95% |
iShares Core Dividend Growth ETF (NYSEMKT: DGRO) | 2.30% | 12% | 11.60%* |
Vanguard S&P 500 ETF (NYSEMKT: VOO) | 1.36% | 14.83% | 12.97% |
Source: Morningstar.com, as of May 17, 2024.
*As of inception date, June 10, 2014.**Vanguard doesn’t provide an SEC yield. This is a 12-month yield.
1. iShares Preferred & Income Securities ETF
The fat recent dividend of about 6.5% for this ETF is possible because it’s not full of regular stocks. Instead, it’s full of preferred stocks. Preferred stocks generally won’t appreciate in value very rapidly, and they tend to pay fixed dividends, so don’t look for big annual increases in their payouts. But their yields are typically heftier than those of their common-stock counterparts. This ETF charges an expense ratio (annual fee) of 0.46%.
2. Vanguard Real Estate ETF
If you’re bullish on the real estate sector’s potential for growth, consider this ETF. It’s full of real estate investment trusts (REITs) — companies that own lots of properties and earn income by renting them out. Owning actual real estate can be tricky and costly, so consider REITs as a simpler alternative. Since REITs are required by law to pay out at least 90% of their income to shareholders, they tend to sport solid dividend yields. This ETF’s expense ratio is 0.12%, and the recent dividend yield is about 4.3%.
3. Schwab U.S. Dividend Equity ETF
This ETF is an index fund, tracking the Dow Jones U.S. Dividend 100 index of high-dividend-yielding U.S. stocks that have consistently paid dividends. The biggest holdings in the fund were recently Texas Instruments, Amgen, and PepsiCo. This ETF’s expense ratio is 0.06%, and its dividend yield is around 3.9%.
4. Vanguard High Dividend Yield ETF
This ETF is another index fund, in this case, tracking the FTSE High Dividend Yield Index. That index is focused on domestic stocks with high dividend yields (excluding REITs). Its recent top holdings included Broadcom, JPMorgan Chase, and ExxonMobil (NYSE XOM). This ETF’s expense ratio is 0.06%, and its dividend yield is about 2.9%.
5. iShares Core Dividend Growth ETF
This ETF tracks an index focused not only on companies paying dividends or significant dividends, but ones that have a history of increasing their payouts. That’s a meaningful distinction, because dividend growth can really power a portfolio. It can make a stock with a 2% yield a more attractive long-term investment than one with a 3% yield if that payout is growing at a rapid clip. The ETF’s top holdings were recently Apple, ExxonMobil, and Chevron. This ETF’s expense ratio is 0.08%, and its dividend yield is about 2.3%.
6. Vanguard S&P 500 ETF
This is a standard S&P 500 index fund — there are lots of them around — and you might wonder what it’s doing here. Well, as it contains 500 of America’s biggest and best companies, many of those are also dividend payers.
Thus, the index fund offers a dividend, and one that increases over time. Its top holdings recently included Microsoft, Apple, and Nvidia. (Each of those companies is a dividend payer, though their current yields are on the low side, below 1%.) Keeping some or much of your money in a low-fee S&P 500 index fund is a solid strategy for long-term growth — with some dividend income. This ETF’s dividend yield is a more modest 1.36%, but its expense ratio is a minuscule 0.03%.
So as you plan for retirement — and you should plan for retirement — keep dividend payers in mind. Its not a bad idea to seek out other income streams for your future years, too, in addition to Social Security — such as perhaps annuities, side gigs, or even a reverse mortgage.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Selena Maranjian has positions in Amgen, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Chevron, JPMorgan Chase, Microsoft, Nvidia, Texas Instruments, Vanguard Real Estate ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Amgen and Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
These 6 Dividend ETFs Are a Retiree’s Best Friend was originally published by The Motley Fool
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