For an investor who wants to grow their money and earn dividends, dividend ETFs can be a brilliant choice. They offer diversified holdings, low fees and the potential for long-term growth. In this guide, we’ll look at what makes these funds so great and show you our top five picks for getting started with them.
Dividend ETFs
Dividend ETFs are a great way to invest in stocks that pay dividends. They’re ideal for long-term investors who want to build income and manage their portfolio at the same time.
If you’re looking for more information on dividend ETFs, look no further! We’ve got all the details here:
Advantages of Dividend ETFs
Dividends are a great way to generate income. The most obvious advantage of ETFs is that they allow you to invest in dividend stocks without having to pay brokerage commissions or wait for your stock order to be filled. This can save you money and time, which can add up over time if you’re investing regularly over several years.
Dividends may also be tax-efficient; depending on your individual circumstances, dividends could be taxed as ordinary income or at lower capital gains rates (depending on whether you’re in the 15% or 20% tax bracket). This means that if your portfolio consists mostly of dividend stocks, their distributions might help offset taxes on interest income from bond holdings—another reason diversification matters!
What Makes a Good Dividend ETF?
- High dividend yield. You should look for an ETF with a high dividend yield, which is a measure of how much money it pays out to investors as dividends per share. The higher the better, but keep in mind that you’ll also want to consider other factors like payout ratio and growth rate.
- Low payout ratio: This is the percentage of earnings paid out as dividends (i.e., “dividend coverage”). If this number gets too low, then there won’t be enough profit left over to cover your expenses (and keep growing). A good rule of thumb is anything under 70%.
- High dividend growth rate: This measures how fast a company increases its dividend payments each year—the higher this number is, the better! But keep in mind that some companies may have lower or even negative growth rates because of poor economic conditions or recessionary periods where their profits decline but they still need cash flow coming from somewhere so they continue paying out what little they can afford even though it might not be enough for investors’ needs… or worse yet if management decides not increase payouts at all despite having plenty left over after covering expenses/expenses themselves which would cause them.
Top 5 Dividend ETFs for Long-Term Investors
Schwab U.S. Dividend Equity ETF (SCHD)
Schwab U.S. Dividend Equity ETF (SCHD) is an ETF that invests in stocks with high dividend yields, which are great for investors who want to get the benefits of a diversified portfolio but don’t want to deal with the hassle of buying individual stocks.
- Pros: This fund is easy to buy and sell, has low fees, and provides broad exposure to dividend-paying companies across industries. It also offers some tax advantages over regular mutual funds when you sell shares or realize capital gains from them because it’s considered an “exchange-traded” fund rather than a traditional mutual fund (see below for details).
- Cons: Because SCHD holds many stocks at once—and those companies may not all pay out their dividends at exactly the same time every year—you could see some wild swings in your investment balance between payments if you’re not careful about rebalancing your portfolio regularly (which we discuss below).
JPMorgan Equity Premium Income ETF (JEPI)
The JPMorgan Equity Premium Income ETF (JEPI) is a large-cap value fund that seeks to provide high current income and long-term capital appreciation. It tracks the performance of the JPMorgan U.S. Large Cap High Dividend Index, which includes companies with a history of paying dividends and trade at lower multiples than their industry peers.
The portfolio consists primarily of large-cap stocks from across all sectors with an emphasis on financials and technology, as well as health care companies that pay higher yields than average for their industry groupings.
JPMorgan Equity Premium Income ETF (JEPI) is one of my favorite dividend ETFs because it offers investors exposure to many industries without having to buy multiple funds or individual stocks yourself – this reduces risk while lowering expenses at the same time!
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
If you’re looking for an ETF that invests in high-yielding stocks, SPDR Portfolio S&P 500 High Dividend ETF (SPYD) is a good choice. SPYD tracks the S&P 500 High Dividend Index and invests in companies with high dividend yields, which makes it ideal for investors who want exposure to these types of companies.
The fund can provide some exposure to small caps as well through its underlying index, but it has a heavy weighting toward large caps—70% at last check—and therefore may not be suitable for those seeking more diversified portfolios.
SPYD also has an expense ratio of 0.25% and a dividend yield of 1.4%. The ETF has about $1 billion in assets under management and is fairly new, having been launched in April 2018.
Vanguard High Dividend Yield ETF (VYM)
Vanguard High Dividend Yield ETF (VYM)
VYM is a US-listed ETF that tracks the performance of the FTSE High Dividend Yield Index. It has been around since 2006 and has $14 billion in assets under management (AUM). The fund has an expense ratio of 0.09% per year and holds over 200 stocks with a weighted average market cap of $18 billion, which means this isn’t just another high-dividend fund with small caps; it’s diversified across all sectors and industries within its focus area: large-cap stocks that pay out above-average dividends.
iShares Core High Dividend ETF (HDV)
Another option is to invest in the iShares Core High Dividend ETF (HDV). This fund holds stocks with a history of paying dividends, which makes it easier to identify companies that are likely to continue paying them.
The average market cap of these companies is $11 billion and their average P/E ratio is 15.2, while they offer an average yield of 3%. This fund also has an average dividend payout ratio of 43%, so you can expect most of your gains to come from capital appreciation rather than distributions from dividends or other forms of income.
The fund has a five-star rating from Morningstar, which means it has outperformed its peers over the past three-, five- and 10-year periods. The fund also received a Gold rating from Lipper for its performance in 2018, meaning that it ranked in the top 40% of all US equity funds based on risk-adjusted returns over time periods ranging from one year to five years.
That’s some impressive performance by any measure. The third option is to invest in the iShares Core Aggressive Allocation ETF (AOA). This fund holds a combination of stocks, bonds, REITs and cash. It has an average market cap of $13 billion and average P/E ratio of 18.4 for its holdings. The average yield is 2.7%, while the dividend payout ratio is 50%..
Conclusion
We hope this article has given you some insight into the world of dividend ETFs, and that it has helped you decide on the best one for your portfolio. If you’re looking for something that gives you a lot of flexibility regarding stock selection and diversification, then SCHD might be a good choice.
It offers exposure to over 800 U.S.-listed stocks with an average yield of 2%. If you want more exposure towards small cap companies or emerging markets equities, then VYM may be better suited as it offers exposure across all three asset classes but only holds around 100 stocks in total.
