ETFs
These 3 Dividend ETFs Are Retirees’ Best Friends
If you’re looking for ETFs that buy dividend-paying stocks, here are the three to consider first.
When people reach retirement age, their investment goals often shift from accumulating assets to managing the savings they have accumulated. Dividend stocks are a great way to do this, but how do you pick the right stocks? The easy answer is not to pick stocks, but to use exchange-traded funds (ETFs) instead.
Here are three dividend-focused ETFs that retirees should put at the top of their list.
1. Schwab U.S. Dividend Stock ETF
Regarding dividends AND F, Schwab US Dividend Stock ETF (SCHD 0.09%) is probably one of the best choices available, but not because it offers the highest yield. Its real strength lies in the fact that it combines yield and quality while managing to offer a yield of 3.65%. Here’s how the fund does it.
First, the ETF selects companies that have increased their dividends for at least a decade. Then, a composite score looks at the ratio of cash flow to total debt (an indicator of financial strength), return on equity (to assess the strength of the company), the dividend yield and the five-year dividend growth rate are created.
The scores are ranked from best to worst, and the companies with the 100 highest scores are placed in the Schwab US Dividend Equity ETF with a market capitalization weighting. (Real Estate Investment Trusts) [REITs] are not taken into account.) The end result is a generous return supported by high-quality businesses.
And you can get all this for an expense ratio of only 0.06%.
2. SPDR Portfolio S&P 500 High Dividend ETF
By comparing, SPDR Portfolio S&P 500 High Dividend ETF (Spy 0.30%) is pretty basic. This ETF simply ranks the S&P 500 indexes returns from highest to lowest and selects the 80 most profitable stocks for its portfolio. Stocks are weighted equally so that each stock has the same impact on performance.
That said, it is important to recognize that the S&P 500 consists of a carefully selected list of large, economically significant companies. As such, for the most part, the stocks that make up the SPDR Portfolio S&P 500 High Dividend ETF are subject to very limited scrutiny.
That said, there are a few important caveats to consider. For example, real estate, financials, and utilities are all sectors of the S&P 500 that tend to have higher dividend yields. As such, these three sectors make up a disproportionate percentage of the SPDR Portfolio S&P 500 High Dividend ETF’s portfolio.
It’s not terrible, but it’s something to keep in mind from the start. a diversification point of view. The fund’s real attraction, however, is its yield of 4.5%. The expense ratio is modest at 0.07%.
3. Vanguard High Dividend Yield ETF
Vanguard High Dividend Yield ETF (VYM 0.03%) is also relatively simple to understand, but his portfolio is much broader. He begins his stock search by taking all dividend-paying stocks and eliminating REITs from the competition. The other dividend payers are ranked from highest to highest. dividend yield at the lowest. The top half is included in the ETF portfolio with a weighting based on market capitalization.
The Vanguard High Dividend Yield ETF holds over 550 stocks, which means it offers greater diversification than the SPDR Portfolio S&P 500 High Dividend ETF. The problem here is that the extra diversification comes at a cost, and it shows on the yield front, with a dividend yield of just about 3%.
Still, that’s more than twice as high as the S&P 500’s roughly 1.3% yield. The expense ratio is also just 0.06%.
One of these three options will probably work for you.
Of the three choices, the Schwab US Dividend Equity ETF is probably the most elegant in terms of its construction. It offers exposure to good companies while still providing an attractive yield. For those who prefer to focus solely on yield, the SPDR Portfolio S&P 500 High Dividend ETF is likely the best choice, while investors who prefer a bit more diversification will probably want to hold the Vanguard High Dividend Yield ETF.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has a position in and recommends Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.