ETFs
3 Dividend-Focused ETFs That Are Coiled Springs for a Lifetime of Passive Income
These ETFs are creative ways to generate passive income with potentially lower volatility than investing in individual stocks.
Generating passive income from a diversified portfolio is a recipe for growing wealth and not letting your investments keep you up at night. Exchange traded funds (ETFs) that invest in dividend-paying companies can be a great way to achieve these goals. Some ETFs incorporate more complex strategies to generate income, such as covered calls or other derivative contracts.
Here is why the Schwab US Dividend Stock ETF (SCHD 1.84%), JPMorgan Equity Premium Income ETF (JEPI 1.00%), and the SPDR Dow Jones Industrial Average ETF (DIA 1.59%) are three ETFs to consider buying in June.
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The Schwab US Dividend Equity ETF offers high yield and diversified exposure
Scott Levine (Schwab US Dividend Stock ETF): For investors who are looking for a high yield opportunity but also want to mitigate risk, the Schwab US Dividend Equity ETF is an ideal choice. With 103 holdings, the ETF is less sensitive to a reduction in an individual stock’s dividends, providing investors with greater certainty that the yield – currently at 3.5% – will remain intact.
According to Charles Schwab, the company that manages the fund, the Schwab US Dividend Equity ETF’s objective is to “track as closely as possible, before fees and expenses, the total return of the Dow Jones US Dividend 100 Index.” A high-yielding U.S. equity index, the Dow Jones US Dividend Index 100 focuses on stocks with a consistent history of paying dividends. Just as attractive as the ETF’s high yield is the fact that investors won’t lose much of that passive income in management fees. The Schwab US Dividend Equity ETF has a total spending rate by only 0.06%.
Although financials make up the largest portion of the ETF, accounting for 17.4% of holdings, other sectors are widely represented. sectors Also. Health care and consumer staples stocks account for 15.7% and 13.9%, respectively, with industrial stocks at 13.5% and energy stocks at 12.8%. Semiconductor specialist Texas Instruments constitutes the ETF’s largest position, while pharmaceutical stocks Amgen And defense central Lockheed Martin occupy the second and third places among the biggest titles.
JPMorgan Equity Premium offers retail investors something different
Lee Samaha (JPMorgan Equity Premium ETF): It’s not difficult to get exposure to stocks; you can buy a bunch of large-cap stocks or an ETF close to the index. However, it is much more difficult for retail investors to gain exposure to this fund’s strategy.
Active management ETFs invests at least 80% of its assets in relatively low-volatility, dividend-paying stocks to generate monthly returns. You can think of this as correlated exposure to S&P500. However, the fund attempts to protect against price declines by investing up to 20% of its funds in options contracts that profit when the S&P 500 index falls.
This strategy is known as call writing. When you sell a call option, you’re betting that a stock (or in this case, the S&P 500 index) won’t rise above a set price before a set date. The person or fund that buys the call option believes the price will be higher than the set price and pays a fee (called a premium) to buy it if it exceeds that price.
Therefore, the ETF will earn a return on the premiums it collects on these contracts, and if the S&P 500 does not exceed the contract price, it is not obligated to sell to the buyer. The profit premiums from these contracts help offset any decline in stock prices.
This is a strategy intended to guarantee investors monthly income from the ETF while generating relatively low volatility returns. This could suit many investors looking for such an instrument, not least because the fund’s rolling 12-month dividend yield is currently close to 7.7%.
This ETF allows you to invest in the 30 sector-leading stocks of the Dow Jones Industrial Average.
Daniel Foelber (SPDR Dow Jones Industrial Average ETF): Many high-yield ETFs focus on value stocks that pay dividends. But to benefit from lifelong passive income, it’s essential to find companies with earnings growth runway that allows them to increase their dividends and reinvest in their operations. The SPDR Dow Jones Industrial Average ETF is a simple, easy-to-understand ETF that balances income, value and growth.
With $31.4 billion in net assets and an expense ratio of 0.16%, the ETF is an inexpensive way to reflect the performance of the Dow Jones Industrial Average. The “Industrial Average” part of the index name is due to its history and not its current composition; only 14% of the SPDR Dow Jones Industrial Average ETF is in the industrial sector. Growth stocks like Apple, Microsoft, AmazonAnd Selling power are all components of the Dow. Due to high concentrations in Goldman Sachs, Visa, American ExpressAnd JPMorgan ChaseFinancials hold a 23.2% weighting, the highest of any Dow Jones sector.
This ETF is unusual because it only contains 30 stocks, so each position has more weight. This is an important distinction from some of the larger funds at low cost, which often include hundreds of titles. The Dow ETF focuses on one or a handful of companies to represent each sector, rather than investing a portion of the fund in dozens of top players.
The SPDR Dow Jones Industrial Average ETF has a yield of 1.8% and a price-to-earnings ratio of 23.6, giving it a higher yield and lower valuation than comparable ETFs focused on the S&P 500 and Nasdaq-100 index.
If you want to invest in recognizable companies that pay dividends, Consider the SPDR Dow Jones Industrial Average ETF.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company.
Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Amazon, Apple, Charles Schwab, Goldman Sachs Group, JPMorgan Chase, Microsoft, Salesforce, Texas Instruments and Visa. The Motley Fool recommends Amgen and Lockheed Martin and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short June 2024 $65 calls on Charles Schwab. The Mad Motley has a disclosure policy.