Income investors should consider these varied ETFs.
Many investors look to exchange-traded funds as tactical ways to position their portfolio. But the ETF universe includes many low-cost, diversified dividend funds that can really take your income investing strategy to the next level. These dividend funds are great for novice investors, as well as a way to cut out hassle for veterans with a specific income goal. Picking individual dividend payers can require a lot of research, and often leaves you at the mercy of one bad earnings report or other unfortunate headline. However, these nine funds all offer slightly different ways to invest for dividends in a diversified and low-stress way.
Vanguard Dividend Appreciation ETF (ticker: VIG)
With some $36 billion in total assets under management, VIG is the largest and one of the cheapest ways to get diversified access to a large basket of dividend stocks, with an expense ratio of 0.08 percent or a mere 80 cents annually on every $1,000 invested. The fund requires holdings to have at least 10 consecutive years of dividend growth and its components form a who’s who of dividend payers. Top holdings include Microsoft Corp. (MSFT), Johnson & Johnson (JNJ) and Walmart (WMT). Some of these picks don’t yield an amazing amount, but their stability is unrivaled.
Current yield: 2 percent
ProShares S&P 500 Aristocrats (NOBL)
Taking the notion of dividend achievers one step farther is a list of dividend aristocrats, the fancy name for a corporation that has increased its distributions at least once a year for 25 consecutive years. This milestone is particularly noteworthy in 2018, since the 25-year window spans two severe market downturns where many weaker corporations couldn’t maintain their dividends, let alone increase them. Holdings include familiar names like cleaning products giant Clorox Co. (CLX) and retailer Target Corp. (TGT) as well as some unsung dividend payers like Emerson Electric Co. (EMR) and industrial conglomerate Dover Corp. (DOV).
Current yield: 2 percent
Vanguard High Dividend Yield ETF (VYM)
If you’re more concerned with current yield than history, this Vanguard fund offers a twist by focusing primarily on how much you get paid. And thanks to the scale of this fund’s massive $30 billion in assets, VYM also offers the rock-bottom expense ratio of just 0.08 percent — among the lowest among any funds, let alone those with a dividend strategy. The focus on above-average payers that include JPMorgan Chase & Co. (JPM) and Exxon Mobil Corp. (XOM) allows for a significantly higher yield than many of the other broad-based dividend funds.
Current yield: 3.2 percent
FlexShares Quality Dividend Index Fund (QDF)
Another interesting twist beyond plain vanilla index funds is this unique FlexShares fund that focuses on qualitative metrics. A number of fundamental screeners are deployed to seek out only the companies with the most stable finances, the most stable payouts and the most room for dividend increases. Though the smallest ETF on this list by assets, QDF is certainly no slouch with almost $2 billion in total cash under management. Holdings include some of the same names as other funds, too, like Microsoft and Walmart, so don’t fear that no-name stocks make up this list.
Current yield: 2.6 percent
iShares International Select Dividend ETF (IDV)
There’s a lot of international dividend stocks and many nations like France and the U.K. have an almost institutionalized relationship between pension funds and corporate dividends that fuels consistent and growing payouts. Many of these global stocks are multinational players and shouldn’t be seen as foreign investments. From pharmaceutical giant AstraZeneca (AZN) to energy icon Royal Dutch Shell (RDS), many American consumers are familiar with these brands. That global reach adds an extra layer of stability — and a higher dividend than American corporations on average.
Current yield: 4.5 percent
iShares U.S. Preferred Stock ETF (PFF)
Beyond common stocks, income investors should consider holding preferred stocks as well. A hybrid between a stock and bond, preferred stock prices don’t move as much as common shares and tend to offer a much higher yield. Their drawback is owners of these securities take a lower priority than bondholders in the event of trouble, and like bonds, they are far less liquid. However, a preferred stock ETF offers all the benefits with ease of trading and diversification to offset some of the risk. That allows investors to tap into this asset class, and harness bigger yields.
Current yield: 5.3 percent
WisdomTree U.S. MidCap Dividend ETF (DON)
Just as preferred stock or international stock can offer a different flavor to dividend payers, some investors want to consider mid-sized corporations in their quest for income. That’s because many entrenched blue-chip stocks tend to be well-represented in the typical portfolio, even if it is simply via an S&P 500 index fund. The DON ETF offers a way to get into the middle tier of Wall Street that contains companies like retailer Macy’s (M) and Olive Garden operator Darden Restaurants (DRI).
Current yield: 2.1 percent
WisdomTree U.S. SmallCap Dividend ETF (DES)
Taking the mid-cap approach one step further is the DES, which is instead focused on small-cap dividend payers. About half the fund is in companies valued at $2 billion or less in market capitalization, including CVR Energy (CVI) and B&G Foods (BGS). Particularly in a fast-moving market, smaller companies are the most likely to benefit from any cyclical uptrend. While there is admittedly more risk in stocks this size, there is undeniably more upside both in share price and in long-term dividend growth if things go well.
Current yield: 2.1 percent
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
This fund uses a number of qualitative metrics to identify dividend payers moving less than their peers — either up or down — and showing stability over the long-term. Then, the fund hand picks the biggest dividend payers out of that group. Unsurprisingly, SPHD has a much more targeted list of components, with just 50 holdings making the cut. But current positions including telecom AT&T (T) and hospital and medical center operator HCP (HCP) offer plenty of yield without as much volatility as the typical large-cap company.
Current yield: 4.1 percent
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9 Best Dividend ETFs to Buy Now originally appeared on usnews.com
