Dividend ETFs are a simple and safe way to grow your income over time.
As the Dow Jones Industrial Average scales new heights and the S&P 500 continues its impressive bull run, savvy investors might be looking to secure their profits. However, it's crucial to remember that long-term investment is the key to accumulating substantial wealth.
For those aiming to temper their risk in this buoyant market while staying invested, dividend-paying exchange-traded funds (ETFs) offer a compelling option. Since 1960, dividends have contributed significantly to the total returns of the U.S. stock market, and this trend is expected to continue well into the future.
Amidst the plethora of dividend-paying ETFs available, three stand out for their performance and reliability: the JPMorgan Equity Premium Income ETF(JEPI), the Schwab U.S. Dividend Equity ETF(SCHD 0.15%), and the Vanguard International High Dividend Yield Index Fund ETF Shares(VYMI 0.78%). Let's dive into what makes these ETFs a top pick for dividend seekers.
JPMorgan Equity Premium Income ETF
The JEPI ETF is a favorite among investors who prefer a steady income stream. Here's why:
Dividend distribution frequency: Investors enjoy monthly dividends, providing a regular income.
Yield: The JEPI sports a 7.63% annualized yield at current levels, making it an attractive option for income-focused portfolios.
Tracking index: This ETF tracks the S&P 500, offering a broad exposure to the market.
Expense ratio: With a relatively low expense ratio of only 0.35%, it ensures more of your money stays in your pocket.
Three-year average annual return: The JEPI has shown consistent growth since inception, delivering a 7.2% average annual return over the prior three years. That's an outstanding return on investment for a high-yield dividend ETF.
Schwab U.S. Dividend Equity ETF
For those looking for a blend of value and dividends, the Schwab U.S. Dividend Equity ETF is a compelling choice. Here are its main attractions:
Dividend distribution frequency: The SCHD dishes out dividends quarterly, aligning with many investors' preferences for larger but less frequent distributions.
Yield: The ETF provides a substantial yield of 3.47%. That's more than double the average yield among S&P 500 listed stocks.
Tracking index: The SCHD tracks the Dow Jones U.S. Dividend 100 Index, which focuses on companies with above-average dividend yields.
Expense ratio: The SCHD is known for its ultra-low expense ratio of just 0.06%, which aids in maximizing investor returns.
Performance: The ETF has a track record of truly exceptional performance. Over the prior five years, the SCHD has delivered average returns of 11.1% per year.
Vanguard International High Dividend Yield Index Fund ETF Shares
For those looking to diversify internationally with a focus on dividends, the VYMI is an excellent option for the following reasons:
Dividend distribution frequency: Like SCHD, VYMI distributes dividends quarterly.
Yield: The ETF offers an attractive yield of nearly 5%, making it an ideal income-generation vehicle.
Tracking index: This Vanguard ETF tracks the FTSE All-World ex-US High Dividend Yield Index, providing exposure to a wide array of international high-dividend-yielding stocks.
Expense ratio: The VYMI comes with a moderate expense ratio of 0.22%, balancing cost with international exposure.
Performance: Despite its high yield, this international dividend ETF has exhibited robust performance, delivering an annual average return of 6.2% over the past five years.
Final thoughts
These three ETFs offer unique advantages for investors seeking dividend income. Whether you're drawn to the monthly payouts of JEPI, the strong performance of SCHD, or the international diversity of VYMI, each ETF presents an opportunity to enhance your investment strategy.
George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account. This substantial amount is due to savings accounts' relatively low return rate.
To have a perfect portfolio to generate $1000/month in dividends, one should have at least 30 stocks in at least 10 different sectors. No stock should not be more than 3.33% of your portfolio. If each stock generates around $400 in dividend income per year, 30 of each will generate $12,000 a year or $1000/month.
Dividend ETFs are better suited for those who want to tap into the stock market's growth, but the value of these ETFs will bear the market's ups and downs. The income from covered-call ETFs is the highest, but the underlying portfolio won't grow by much and the level of income is subject to large swings.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
The Invesco S&P 500 High Dividend Low Volatility ETF builds its portfolio from the stocks included in the S&P 500 index. The fund selects 50 securities from the benchmark index with high dividend yields and low volatility.
If you own shares of an exchange-traded fund (ETF), you may receive distributions in the form of dividends. These may be paid monthly or at some other interval, depending on the ETF. It's important to know that not all dividends are treated the same from a tax perspective.
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