If you are in search of ETFs that invest in dividend-paying stocks, consider these top three options.
As individuals reach retirement age, their investment focus often shifts from accumulating assets to relying on savings for income. Dividend stocks offer a great way to achieve this goal, but selecting the right stocks can be challenging. One simple solution is to invest in exchange-traded funds (ETFs) instead.
Here are the top three dividend-focused ETFs that retirees should consider:
1. Schwab U.S. Dividend Equity ETF (SCHD 0.14%)
This ETF stands out for its ability to blend yield and quality, offering a competitive trailing yield of 3.65%. The fund screens for companies that have consistently increased their dividends for at least ten years and assesses their financial and business strength, dividend yield, and growth rate. The top 100 scoring companies are included in the ETF, excluding real estate investment trusts (REITs). With a low expense ratio of 0.06%, investors can benefit from a generous yield backed by high-quality companies.
2. SPDR Portfolio S&P 500 High Dividend ETF (SPYD 0.12%)
This ETF selects the 80 highest-yielding stocks from the S&P 500 index and equally weights them in its portfolio. While the S&P 500 consists of large and economically significant companies, investors should note the sector concentration in real estate, finance, and utilities. Despite this, the ETF offers a compelling yield of 4.5% with an expense ratio of 0.07%.
3. Vanguard High Dividend Yield ETF (VYM 0.14%)
With a portfolio of over 550 stocks, this ETF provides greater diversification compared to SPDR Portfolio S&P 500 High Dividend ETF. The fund excludes REITs and ranks dividend-paying stocks by yield, with the top half included in the portfolio based on market cap weighting. While the yield is slightly lower at around 3%, it still surpasses the yield of the S&P 500. The expense ratio is also favorable at 0.06%.
Each of these three options offers unique advantages depending on individual preferences. Schwab U.S. Dividend Equity ETF is known for its quality companies and attractive yield, while SPDR Portfolio S&P 500 High Dividend ETF focuses solely on yield. Vanguard High Dividend Yield ETF provides greater diversification at a slightly lower yield. Investors can choose the ETF that best aligns with their investment goals and risk tolerance.
Please note that Reuben Gregg Brewer has no position in any of the mentioned stocks. The Motley Fool has positions in and recommends Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF and follows a disclosure policy.