Safe funds for investors in their 50s and 60s.
When investors go income hunting early in their careers, they can afford to take a few moonshots on risky ultra-high-dividend stocks and ETFs. If they’re wrong, they have decades to make up the lost ground. But when they hit their 50s and 60s, their dividend portfolio must be invested in funds that offer more realistic payouts that anchor their investment income and help pay for regular expenses in retirement. Never fear: these nine dividend ETFs should provide safe income between roughly 2 and 6 percent for decades to come.
Vanguard Dividend Appreciation ETF (ticker: VIG)
The first rule of dividend growth funds is they rarely offer high yield. Instead, ETFs like the VIG commonly are constructed in a way that seems to view dividend growth as a measure of quality, like you would view low debt and high cash holdings. But that’s OK as long as you know what you’re getting into. VIG’s blue-chip holdings, such as Microsoft Corp. (MSFT) and PepsiCo (PEP), have grown their payouts for at least 10 consecutive years, and will provide steadily improving dividends that you can rely on down the road. While it’s not glamorous, you’ll want that kind of income dependability in retirement.
Dividend yield: 2.1 percent
Expenses: 0.08 percent, or $8 annually on every $10,000 invested
FlexShares International Quality Dividend Index Fund (IQDF)
FlexShares’ IQDF also focuses on quality dividend stocks, though it doesn’t use dividend growth as a metric. Instead, IQDF tries to identify sustainable yields by screening for metrics such as profitability, cash flow and management’s efficiency in deploying capital, all while trying to keep the beta (a measure of volatility) to 1, putting it on par with the broad market. The resulting 191-stock portfolio is primarily spread across developed Europe and Asia, and includes blue-chip dividend names such as British American Tobacco (BTI) and Netherlands consumer staples giant Unilever NV (UL). And like many large-cap international funds, the dividends are substantial.
Dividend yield: 3.8 percent
Expenses: 0.47 percent (includes 1-basis-point fee waiver)
Legg Mason Low Volatility High Dividend ETF (LVHD)
Another angle that all dividend investors should consider are low-volatility funds, which attempt to identify stocks that tend to jerk around less than the Standard & Poor’s 500 index, keeping you away from the Maalox. Legg Mason’s LVHD is one such fund, and it also features an income bent. LVHD screens for high, sustainable yields, low earnings and price volatility, caps any holding at a 2.5 percent weight at rebalancing and caps any sector at 25 percent of the fund. Unsurprisingly, utilities (23 percent) and consumer staples (20 percent) are the top two sectors, with Dominion Resources (D) and Coca-Cola Co. (KO) among the top holdings.
Dividend yield: 3.3 percent
Expenses: 0.3 percent
Guggenheim S&P 500 Equal Weight Utilities ETF (RYU)
Every sector will bob and weave over time, but investors’ best bet for long-term stability and dividends lies in the utilities sector. Electric, water and other utilities enjoy virtual monopolies across the country, and while they don’t offer much growth, they are able to slowly raise rates over time, which helps fuel modest price appreciation and dividend expansion. RYU is the ultimate safety play on the space, equal-weighting its holdings to ensure no stock can bring down the fund. Current top holdings are FirstEnergy Corp. (FE) and NextEra Energy (NEE) at about 3.3 percent each.
Dividend yield: 3.1 percent
Expenses: 0.4 percent
iShares 7-10 Year Treasury Bond ETF (IEF)
Very little sticks out about iShares’ IEF, and that’s almost the point. This ETF invests in U.S. Treasuries, which are among the safest bonds on the planet at the moment — that’s great for the security aspect of retirement investing, though not all that friendly from a yield perspective. However, this ETF does invest in bonds with remaining maturities of between seven and 10 years, putting it right around the middle of the maturity spectrum — so, not as risky as long-term Treasurys, but more yield than shorter-term bonds. Thus, if you need fixed income in your portfolio, this is a high-safety play with simply OK income.
Dividend yield: 1.8 percent
Expenses: 0.15 percent
Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
A complementary play for the IEF is Vanguard’s VCIT, which is a little bit more risky, but provides a good amount of extra income for the trouble. VCIT holds a wide basket of roughly 1,750 investment-grade bonds from U.S. corporations, including the likes of Anheuser-Busch Inbev (BUD) and Apple (AAPL) that don’t have a sniff of financial difficulty. And they have similar moderate maturities between five and 10 years. However, single corporations are still a little more risky than federal debt, and thus command higher yields. Hence, at the moment, VCIT yields north of 3 percent.
Dividend yield: 3.2 percent
Expenses: 0.07 percent
VanEck Vectors Preferred Securities ex Financials ETF (PFXF)
Preferred securities are far from bulletproof, but they’re among some of the most stable high-yield assets on Wall Street. These so-called stock-bond hybrids tend to trade around par value, closer to bonds in nature, and as a result have very little wiggle — for better and for worse. The upside is that they typically pay between 5 and 7 percent in yields. PFXF holds 114 of these stocks, and unlike most other preferred ETFs, this one also excludes financial companies’ preferreds in hopes of avoiding a repeat of 2008-09. Instead, utilities, real estate investment trusts and telecom preferreds rule the roost.
Dividend yield: 5.9 percent
Expenses: 0.41 percent
iShares Core Moderate Allocation ETF (AOM)
iShares has several so-called “multi-asset” ETFs that, as the name implies, hold several types of assets. The AOM is among the simplest of these types of funds, offering a simple mix of bonds and global equities — at the moment, that balance is 56 percent fixed income and 43 percent stocks. This is an extremely conservative fund that uses 10 iShares ETFs — such as iShares Core Total USD Bond Market (IUSB) and the iShares Core S&P 500 ETF (IVV) — to achieve its exposure. If you had to put all your eggs in one basket, AOM is a prime example of a low-risk, all-in-one fund.
Dividend yield: 1.9 percent
Expenses: 0.25 percent (includes 9-basis-point fee waiver)
Principal Edge Active Income ETF (YLD)
If you like the idea of a multi-asset fund, but AOM is too chintzy for your liking, consider YLD, but be warned: Its risk is deceptive. While nearly two-thirds of the fund is invested in bonds, YLD leans on junk debt to help juice its yield, and the roughly 25 percent equity allocation is about a quarter invested in REITs for the same purpose. The trade-off is what you’d expect — since inception in 2015, YLD has moved more sharply than AOM (in both directions), but the higher yield has helped pad its declines. If income is what you’re after, YLD has plenty.
Dividend yield: 4.1 percent
Expenses: 0.65 percent (includes 80-basis-point fee waiver)
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