Pensioners have been flocking for a long time dividend stocks because they generate income without forcing investors to sell stocks – but by betting on individual actions is a risky business. The advent of the high-dividend ETF has allowed not just retirees, but all investors to benefit from their holdings without putting all their eggs in one basket.
See: 3 things you need to do when your savings hit $50,000
Here’s a look at some of the most income-producing ETFs and how you can choose the right one for you.
What are the 5 best dividend funds?
Knowing that the best dividend funds aren’t necessarily the ones that offer the highest returns, consider the following five income-generating ETFs that offer good returns while displaying sound fundamentals, such as holdings, expenses and assets. under management (AUM).
1. SPDR S&P 500 ETF Trust
Established in 1993, SPDR S&P 500 ETFs Trust (SPY) is the oldest ETF in the United States – and perhaps the most stable. It typically shows the highest AUM ranking and the highest trading volume.
SPY tracks the S&P 500, the benchmark stock market index that represents 500 of America’s largest companies.
|Main titles||Apple Inc., Microsoft Corporation, Amazon, Alphabet Inc.|
|AT M||$380.34 billion|
2. ProShares S&P 500 Dividend Aristocrats ETF
NOBL picks the crème de la crème of the S&P 500 — the so-called dividend aristocrats, a handful of companies that have raised their dividends every year for at least 25 years in a row. There are currently only 65. Only the most stable, profitable and resilient companies in the world can increase their dividends consistently for a quarter of a century thanks to changing market conditions – most of these aristocrats have been doing it for 40 years or more.
|Main titles||WW Grainger Inc., Chevron Corp., Nucor Corp., Archer-Daniels Midland Co., Exxon Mobil Corp.|
|AT M||$11.36 billion|
3. GraniteShares HIPS US High Income ETF
GraniteShares HIPS US High Income ETF (HIPS) bills itself as “historically one of the best performing ETFs in the US market”. With a return approaching double digits, it’s certainly up there – but the trade-off is a painfully high expense ratio. It offers exposure to four alternative high-income categories: BDC, MLP, closed-end funds and REITs.
|Main titles||Blackstone Strategic Credit Fund, Invesco Dynamic Credit Opps, Blackrock Debt Strategies Fund Inc.|
|AT M||$65.68 billion|
4. Vanguard High Dividend Yield ETF
VYM provides exposure to domestic dividend stocks from various sectors by tracking the FTSE High Dividend Yield Index, which includes over 400 stocks. It focuses on the financial, healthcare and consumer staples segments.
|Main titles||Exxon Mobil Corp., Johnson & Johnson, JPMorgan Chase & Co., Chevron Corp.|
|AT M||$50.38 billion|
5. Vanguard FTSE Emerging Markets ETF
This high-dividend ETF focuses on stocks from emerging markets like China, Brazil, South Africa and Taiwan. Its performance is impressive and its expense ratio is very cheap, but tread lightly. Emerging market funds like this have high growth potential but also high risk. VWO is designed for long-term investors who can tolerate a higher level of volatility.
|Main titles||Taiwan Semiconductor Manufacturing, Tencent Holdings Ltd., Alibaba Group Holding Ltd.|
|AT M||$73.18 billion|
Which ETF pays the highest dividend?
GlobalX SuperDividend ETF yields an impressive 13.48% return, which puts almost every other major fund in the market to shame. It exposes investors to 100 of the world’s highest dividend yielding stocks and has made monthly distributions for the past 11 years.
What are the safest dividend-paying ETFs?
Although it seems counterintuitive, the ETF with the highest dividend yield is not always the best dividend ETF. Outsized returns often prove unsustainable over time and can fall with the stock price when market conditions change.
Struggling companies sometimes offer outsized dividends to entice new investors, even if it means paying more than they bring in. On the other hand, a slower, slower payout ratio can be a great indicator that an organization is healthy and stable.
Is a dividend ETF a good investment?
Dividend investing is attractive because it offers the opportunity to reap equity profits without selling shares. Investors are flocking to exchange traded funds for the diversity they offer, their simplicity and ease of use. Dividend ETFs offer the best of both worlds, but they are not a magical wealth-generating machine.
Before choosing an ETF, it is a good idea to:
- Set financial goals.
- Research dividend funds, stock markets and macro factors.
- Determine the right combination of assets.
- Review all current investments.
Once the strategy preparation is complete, it’s time to look for the right ETF. Some of the main aspects to keep in mind include:
- ETF fees: Understanding an ETF’s expense ratio is crucial in determining which gives the best returns.
- Overall return: This is a solid indicator of the kind of income you can expect from your ETFs, even when dividends aren’t guaranteed over time.
- Liquidity of assets: If an ETF has less asset availability, it could become difficult to sell it when the time comes.
It is important to remember that all types of investments can lead to losses. This is why it is essential to evaluate which funds invest in riskier assets and which remain on the safer side. While dividend yield is a great tool for picking the best dividend-paying stocks, it’s not all there is to dividend investing. You should also assess stock prices to avoid getting involved in struggling companies.
High-dividend ETFs are a great choice for veterans and newbie investors same, depending on short-term and long-term financial goals. They provide shareholders with a passive income stream that can increase over time as the stock appreciates.
Remember that there is no rule that requires you to choose just one ETF. A mix of funds can further diversify your holdings and allow you to fine-tune your investment strategy according to your goals.
High Dividend ETF FAQs
Are you considering an investment in a high dividend ETF, but want to know more? Here are some of the most frequently asked questions about high dividend ETFs.
- Which ETFs pay a monthly dividend?
- If you are looking for consistent income from your investments, the following ETFs make payments on a monthly schedule: SPDR S&P 500 ETF Trust, ProShares S&P 500 Dividend Aristocrats ETF, GraniteShares HIPS US High Income ETF, Vanguard High Dividend Yield ETF and Vanguard FTSE Emerging Markets ETFs, among others.
- Are High Dividend ETFs Worth It?
- Dividends can be a good way for investors to build wealth over time – unlike other types of investments, dividends generate passive income. It is a perfect investment for retirees and others looking to receive passive income.
- As always, whether an investment is right for you depends on what you want from your investments and your financial goals.
- Are high dividend ETFs taxed?
- High-dividend ETF payouts receive similar treatment to income and should be reported on your 1099 statement. Profits from the sale of ETFs are taxed like the underlying stocks or bonds they contain.
Daniela Rivera Herrera contributed to the writing of this article.
Information is accurate as of February 10, 2023 and is subject to change.
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