The 3 Best ETFs for Dividends | Smart Change: Personal Finance


Investing for passive income is great; Dividends can pay for your living expenses, help you retire early, or you can reinvest them to generate more returns. But many stocks pay dividends, and they are certainly not all created equal.

Exchange-traded funds (ETFs) are baskets of stocks packaged and traded under one ticker symbol. Investing in ETFs aligned with your investment strategy is like hitting the easy button; no stress from picking individual stocks. And yes, they make ETFs built around paying dividends.

Here are three high-quality ETFs that can simplify how you invest and will pay you to own them.

1. An ETF for dividend growth

iShares Core Dividend Growth ETF (NYSEMKT: DGRO) is an ETF designed to track an index of prominent US dividend-paying companies. The fund has a whopping 418 holdings, meaning you can enjoy the safety of a diverse stock portfolio with a single ticker symbol.

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The iShares Core Dividend Growth ETF is a large fund with assets totaling just under $21 billion. The fund pays a dividend quarterly and has a dividend yield of 2.1%. Its low expense ratio of 0.08% means investors don’t have to worry about the fund’s management fees sapping away at their investment returns.

The fund’s top holdings include some of America’s most established businesses, like Johnson & Johnson, Microsoft, Coca-Colaand Home Depot. Stocks in information technology, financials, and healthcare — arguably the largest sectors in the US economy — make up more than half of the fund. The iShares Core Dividend Growth ETF is a great starting block if you’re looking for a simple basket of blue-chip dividend growth stocks and some solid income.

2. Become a real estate investor

Vanguard Real Estate ETF (NYSEMKT: VNQ) allows investors to invest in real estate without owning any real property. This ETF includes investments in various real estate investment trusts (REITs) and real estate development, services, and operating companies.

REITs comprise most of the Vanguard Real Estate ETF, and its REIT exposure spans numerous sectors, including industrial, residential, retail, healthcare, and office properties. The ETF tracks the MSCI US Investable Market Real Estate 25/50 Index; it has 171 total holdings and a total fund value of $78 billion.

The fund charges an expense ratio of 0.12%, which seems like a bargain price for the instant exposure to real estate you can get from shares. It also offers investors a 3.4% dividend yield, making it a solid income investment and, perhaps more importantly, a simple way to diversify your portfolio away from traditional stocks and bonds.

3. Maximize income and minimize volatility

Invesco S&P 500 High Dividend Low Volatility Portfolio ETF (NYSEMKT: SPHD) is a fund built for conservative investors. It emphasizes stocks and sectors with mature, well-entrenched businesses, sacrificing growth for more dividend income. It has 52 holdings, built to track the S&P 500 Low Volatility High Dividend Index.

Utilities, consumer staples, and real estate make up just over half of the total funds in the ETF. No individual stock is weighted more than 3%, but owning the fund exposes you to several high-yield stocks like Altria, Philip Morris, AT&T, Chevronand Kinder Morgan. The fund has a total market value of $3.7 billion.

Its dividend yield is a hefty 3.8%, which offers a balance between generating income and taking on risk. The expense ratio is the highest of the three ETFs, at 0.30%. Still, investors are paying fund managers for that high yield while filtering out the risky stocks that offer dividend yields but have higher risks of faltering.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot, Kinder Morgan, Microsoft, and Vanguard Real Estate ETF. The Motley Fool recommends Johnson & Johnson and Philip Morris International and recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.

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