ETFs
U.S. companies paid a record $164.3 billion in dividends in the first quarter. Here are 2 ETFs to buy to get a share of that income
Dividend payments continue to grow.
American companies are offering their investors more dividends this year. Dividend payments from U.S.-based companies hit a record $164.3 billion in the first quarter, according to the latest Janus Henderson Global Dividend Index. This represents an increase of 7% compared to the first quarter of last year.
Several companies contributed to the file, including Costcowhich paid massive dividends of $6.7 billion (including a special dividend of $15 per share). Many others have increased their payouts or launched a dividend, including Metaplatformswhich paid its first-ever dividend of $1.3 billion in March.
There are many ways to get a share of this dividend income. You can invest directly in some of the best dividend stocks or buy an exchange-traded fund (ETFs) focused on dividends. Here’s a look at two top Dividend ETF buy to add passive income to your portfolio.
Focus on the 100 best dividend stocks
Schwab US Dividend Stock ETF (SCHD 1.84%) aims to follow the total return of the Dow Jones US Dividend 100 Index. This index features 100 higher dividend-paying US stocks with a strong track record of consistently paying dividends. It focuses on companies with quality, sustainable dividends supported by strong financial metrics relative to their peers.
The fund’s top holdings have a long history of paying growing dividends:
|
Texas Instruments |
4.8% |
2.6% |
20 consecutive annual increases |
|
Amgen |
4.3% |
3% |
12 consecutive annual increases |
|
4.3% |
2.8% |
21 consecutive annual increases |
|
|
Pfizer |
4.2% |
5.9% |
31 consecutive annual increases |
|
4.2% |
3.1% |
52 consecutive annual increases |
|
|
4.1% |
4.1% |
37 consecutive annual increases |
|
|
4% |
3.1% |
62 consecutive annual increases |
|
|
3.9% |
6.8% |
17 consecutive annual increases |
|
|
Cisco Systems |
3.8% |
3.4% |
12 consecutive annual increases |
|
3.8% |
2.6% |
15 consecutive annual increases |
Data sources: Google Finance, Schwab, Koyfin and company press releases. NOTE: Data as of May 28, 2024.
Each of its top 10 stocks pays a dividend that yields more than double the S&P500 (currently around 1.3%). This helped support a higher dividend yield for the ETF (3.5% over the last 12 months).
The fund also focuses on companies with a long history of increasing their dividends. This has helped support the ETF’s steady increase in dividend payouts:
SCHD dividend data by Y charts.
The fund offers investors access to 100 of the top dividend-paying stocks for an ultra-low cost of 0.06%. So low ETF expense ratio allows investors to keep more of the dividend income generated by the fund’s holdings.
High quality stocks with high dividends
SPDR S&P Dividend ETF (SDY 1.82%) aims to track the total returns of the S&P High Yield Dividend Aristocrats Index. (The term Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC.) This index contains companies that have consistently increased their dividend for at least 20 consecutive years and weights these stocks based on their returns. The fund currently has 135 securities.
Its top 10 titles are:
|
3M |
2.7% |
2.8% |
3M recently cut its dividend (ending more than 60 years of consecutive increases) |
|
Real estate income |
2.5% |
6.1% |
107 consecutive quarterly increases |
|
The Southern Company |
1.8% |
3.7% |
23 consecutive years of dividend increases |
|
Price T. Rowe |
1.8% |
4.2% |
38 consecutive years of dividend increases |
|
Chevron |
1.8% |
4.1% |
37 consecutive years of dividend increases |
|
Edison International |
1.8% |
4.2% |
20 consecutive years of dividend increases |
|
Xcel Energy |
1.8% |
4.1% |
21 consecutive years of dividend increases |
|
NextEra Energy |
1.7% |
2.7% |
30 consecutive years of dividend increases |
|
Kenvue |
1.7% |
4.1% |
Johnson & Johnson split last year (62 years of dividend increases) |
|
Consolidated Edison |
1.6% |
3.5% |
50 consecutive years of dividend increases |
Data sources: Google Finance, State Street, Koyfin and company press releases. NOTE: Data as of May 28, 2024.
This ETF leans more towards utility stocks (five in the top 10), which tend to offer higher-yielding dividends that increase slowly each year. For this reason, this ETF has a higher dividend yield than the S&P 500 (2.5% over the past year).
The fund has a higher expense ratio (0.35%) than the Schwab US Equity Dividend ETF. However, it should also provide investors with an above-average and steadily growing dividend income stream, supported by companies with a long history of increasing their payouts.
Simple Ways to Start Earning Dividend Income
Dividend payments continue to rise in the United States as companies increase profits. Those who want to get a share of this income can easily do so by investing in a dividend-focused ETF like the Schwab US Dividend Equity ETF or the SPDR S&P Dividend ETF. They both focus on higher-yielding dividend-paying companies that have an excellent track record of increasing their payouts. For this reason, these ETFs should provide investors with a growing stream of passive income.
Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Matt DiLallo has positions in 3M, Alphabet, Chevron, Coca-Cola, Kenvue, Meta Platforms, NextEra Energy, Realty Income, T. Rowe Price Group and Verizon Communications and has the following options: August 2024 short sale of $20 on Kenvue. The Motley Fool holds positions in and recommends Alphabet, Charles Schwab, Chevron, Cisco Systems, Costco Wholesale, Kenvue, Meta Platforms, NextEra Energy, Pfizer, Realty Income and Texas Instruments. The Motley Fool recommends 3M, Amgen, Lockheed Martin, T. Rowe Price Group and Verizon Communications and recommends the following options: long January 2026 $13 calls on Kenvue and short June 2024 $65 calls on Charles Schwab. The Motley Fool has a disclosure policy.