Whether you’re just starting to invest or you’re in retirement, you can benefit from a passive income stream for life. But how to achieve this?
To do this, many investors turn to dividend exchange-traded funds (ETFs). Instead of picking stocks individually, you can choose an ETF that invests in hundreds or even thousands of stocks. These funds are managed by experienced investment professionals. And some specifically invest in stocks that pay dividends. These are regular payments that companies make to shareholders out of their profits. So you can think of them as bonuses without any increase in the share price.
However, there are many dividend-paying ETFs. So where do you start? To help, we’ve compiled a list of some of today’s highest dividend-paying ETFs.
So let’s take a closer look.
The Schwab US Dividend Equity ETF (SCHD) is a very popular fund among dividend investors. SCHD invests in 80 high-quality companies in the Dow Jones US Dividend 100 index. Fund managers scrutinize these companies for their strong financial performance and consistent dividend payments. This can add some stability to your portfolio. Additionally, most of the companies it invests in are in the energy, consumer staples and healthcare sectors. These are generally considered defense industries. This means that these companies are expected to remain stable even during economic turmoil.
Its largest holdings include Cisco (NASDAQ: CSCO ), PepsiCo (NASDAQ: PEP ) and Home Depot.
In addition, SCHD provides a high yield of about 3.90%. In addition, it stands out with a low expense ratio of 0.06%. Expense ratios are annual fees that can wipe out your savings. However, SCHD’s expense ratio is one of the lowest in the industry.
Vanguard is known for funds with extremely low fees. And the Vanguard High Dividend Yield ETF (VYM) is no exception. Its expense ratio is in line with SCHD at 0.06%. But it offers more than that. VYM leads with diversity. It invests in more than 500 quality companies that pay high dividends. It has an impressive yield of about 2.49%.
The fund’s largest holdings are in the financials, basic materials, consumer staples, consumer staples and technology sectors. Its largest holdings include Broadcom (NASDAQ: AVGO ), JPMorgan Chase (NYSE: JPM ) and Microsoft (NASDAQ: MSFT ).
In addition, VYM’s net assets amount to 81.3 billion. The foundation was established in 2006. and boasts an annual return of nearly 13%.
Overall, VYM can offer stability and high yields at a very low cost. This could add an extra layer of diversity to SCHD.
So far, we’ve discussed ETFs that invest in local stocks. But you can further diversify your portfolio with a fund that invests in international stocks.
That’s where the Vanguard International High Dividend Yield ETF ( VYMI ) can come into play. VYMI invests in non-US multinational stocks that are expected to pay higher than average dividends. The fund’s main shares are in the markets of the United Arab Emirates, Austria and Australia.
Its expense ratio is slightly higher than our first two funds. However, it remains competitive at 0.17 percent.
VYMI’s objective is to invest in high dividend paying companies in emerging markets. It tracks the performance of the FTSE All-World ex US High Dividend Yield index. It can add another layer of international diversification when combined with VYM, SCHD or both.
The SPDR Portfolio S&P 500 High Dividend ETF (SPYD) invests in the top 80 high dividend-paying companies in the S&P 500 index. Its objective is to provide high dividend yield as well as strong capital appreciation by investing in quality companies.
Its biggest investments include CVS, Best Buy (NYSE:BBY), and ABBVIE (NYSE:ABBV). It boasts an impressive five-year return of 15.18%. It also had a low expense ratio of 0.07%.
The JPMorgan Equity Premium Income ETF ( JEPI ) is a little different than the other funds on our list. He earns income not only by investing in large-cap stocks. But also sells options. This strategy helped generate a high yield of 8.62%.
And unlike the passively managed funds on our list, JEPI is actively managed. Passive management means that the fund seeks to mimic the returns of a specific index, such as the Nasdaq 100. Active management means that the fund seeks to beat the returns of a given index.
JEPI fund managers seek to invest in overvalued and undervalued S&P 500 stocks with attractive risk and return characteristics.
Its biggest assets are members of the Magnificent Seven, such as Nvidia (NASDAQ: NVDA ), Alphabet (NASDAQ: GOOGL ) and Microsoft (NASDAQ: MSFT ).
However, actively managed funds generally have higher fees than passively managed funds. JEPI’s expense ratio is 0.35%.
All our covered funds are characterized by diversification, competitive fees and high returns. ETFs such as SCHD, VYM and SPYD stand out for their stability and high returns. VYMI shines and adds international exposure. And actively managed JEPI has the highest yield. Any of these can help you generate income for life. However, you can also create a diversified portfolio tailored to your investment goals by combining some or all of these funds.
