5 High Yield Dividend ETFs to Buy to Generate Passive Income

Who wouldn’t want passive income? By definition, it’s money that comes to you without you having to work for it. You don’t have to work, inherit money from a wealthy relative, or even rob a bank to get this money.

There is many potential sources of passive income, and not all of them will please everyone. You can buy properties and rent them out, for example, but that requires occasional effort and some real estate savvy. Purchasing a fixed annuity can also allow you to receive monthly payments, but you will usually have to pay a significant amount for that annuity up front.

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Five Compelling High Dividend ETFs

So consider high-dividend exchange-traded funds (ETFs). They operate much like mutual funds, but they trade like stocks, and some boast solid dividend yields while also offering growth potential. Here are five to take a closer look, plus a bonus.

FNB

Recent performance

Five-year annualized return

Annualized return over 10 years

Source: Morningstar.com, as of June 24, 2024.

*Vanguard does not provide SEC returns. This is the recent “unadjusted effective return” of the ETF.

If the above chart doesn’t sound interesting enough, this might help: Imagine you own—or retire with—a $500,000 portfolio that has an overall average dividend yield of 3.5%. That’s enough to generate $17,500 in passive income each year. If you’re currently earning, say, $80,000 per year, that’s the equivalent of earning an additional 22% bonus per year.

Now that you are more interested in these ETFs, let’s take a brief look at each of them.

iShares Preferred and Income ETFs

This ETF specializes in preferred stocks, not the common stocks that most of us invest in most of the time. Don’t expect the value of preferred stocks to increase much, or their dividends to increase much either. They often pay fixed dividends, but they also often offer outsized returns.

Schwab US Dividend Stock ETF

This index fund tracks the Dow Jones US Dividend 100 Index, which is comprised of high-yielding US stocks that have consistently paid dividends. Its largest recent holdings were Texas Instruments, AmgenAnd Lockheed Martin.

The story continues

Vanguard Real Estate ETF

Real estate investment trusts (REITs) own a lot of real estate and generate income from renting it out. Since owning real estate can be tricky and expensive, if you want to profit from real estate, you might want to consider investing in an ETF like this one instead. Owning a REIT can be thought of as “the really lazy way to be a landlord.” Top holdings of this ETF recently included Prologis, American tourAnd EquinixThey specialize respectively in warehouses, telecommunications towers and digital infrastructures, among others.

Vanguard High Dividend Yield ETF

This ETF aims to replicate the returns of the FTSE High Dividend Yield Index, minus its low fees. It focuses on high-yielding US stocks from the FTSE Global Equity Index series (excluding REITs), and its recent top holdings include Broadcom, JPMorgan ChaseAnd ExxonMobil.

iShares Core Dividend Growth ETF

This ETF holds stakes in companies that not only pay large dividends, but also have a track record of increasing their payouts. Growing dividends can be particularly powerful portfolio boosters, and this ETF’s top holdings have recently been Apple, Microsoftand ExxonMobil.

Vanguard S&P 500 ETF

Finally, here is an ETF paying bonus dividends. The yield on this S&P 500 index fund isn’t huge, but it makes up for that with a solid growth track record. The returns in the table above show how it has generally compared to other recommended stocks, but don’t expect returns that high in the future. The stock market’s long-term average annual gain is closer to 10% than 15%. Investing in the S&P 500 can provide you with a measure of passive income from dividends as well as stock price appreciation.

There are plenty of other solid ETFs to investigate, many of which offer significant dividend yields. There are also many ETFs and stocks offering higher dividend yields, although they may also offer lower historical returns and/or more risk. So explore some or all of these or a few others, and you should be able to set yourself up to collect plenty of passive income.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Selena Maranjian has positions in American Tower, Amgen, Apple and Microsoft. The Motley Fool has positions in and recommends American Tower, Apple, Equinix, JPMorgan Chase, Microsoft, Prologis, 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, Broadcom and Lockheed Martin. The Motley Fool has a disclosure policy.

5 High Yield Dividend ETFs to Buy to Generate Passive Income was originally published by The Motley Fool

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