Investing in dividend stocks is one of the easier ways to generate passive income. The only work you need to do is build a diversified portfolio of high-quality, high-yield, dividend-paying stocks. You can then sit back and watch the dividend income flow into your account.
An even easier path to passive income is investing in a exchange traded fund (ETF) focuses on higher yielding stocks that pay dividends. Schwab US Dividend Equity ETF (NYSEMKT: SCHD) And Vanguard Real Estate ETF (NYSEMKT: VNQ) are great options. These ETFs each contain more than 100 stocks with higher dividend yields, providing instant diversification. Here’s a closer look at these two higher returns dividend ETFs.
A portfolio with immediate income
Schwab US Dividend Equity ETF is a passively managed fund that tracks the total return of the Dow Jones US Dividend 100 Index. That index includes 100 of the country’s best dividend stocks and focuses on higher-yielding companies that have a strong track record of consistently paying dividends. It selects companies based on their financial strength compared to their peers.
The ETF holds approximately 100 stocks, diversified across different stock market sectors:
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Financial details: 17.4% of the portfolio
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healthcare: 15.7%
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Consumer goods: 13.9%
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Industrialists: 13.5%
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Energy: 12.8%
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Consumer discretionary: 10.1%
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Information Technology: 8.7%
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Communication services: 4.7%
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Materials: 3.1%
The fund’s top 10 investments comprise approximately 40% of its assets. It owns several high-yielding dividend stocks, including Verizon (4% of the portfolio) and Pfizer (3.9%), which yields almost 7% and 6% respectively. Most of its top holdings have excellent records of increasing their dividends (Verizon has increased its payout for 17 years in a row, while Pfizer’s streak is a whopping 15 years in a row).
The ETF’s current distribution yield is over 3.3%. That’s more than double the S&P 500’s dividend yield (about 1.3%). The fund charges costs a very low ETF Expense Ratio of 0.06%. That low fee allows fund investors to keep a greater share of the dividend income generated by this fund are possessions. For example, a $1,000 investment in the fund would generate more than $33 in dividend income each year while incurring only $0.60 in management fees.
The really lazy way to be a landlord
Investing in real estate can be a great way to generate passive income. However, managing rental properties requires work (and a lot of money). A cheaper and more passive approach is investing in real estate investment trusts (REITs). REITs own income-producing properties and typically pay out the majority of their income in dividends.
An even more passive strategy is to invest in an ETF focused on REITs, such as the Vanguard Real Estate ETF, which invests exclusively in REITs. It currently owns more than 150, giving investors diversified exposure to the entire sector. REITs tend to pay high-yielding, growing dividends. Here’s a snapshot of some of it largest possessions:
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Prologis (6.5% of fund assets): The leading industrial REIT yields almost 4%. Over the past five years, it has grown its dividend at a compound annual rate of 13%, more than double the REIT industry average of 5%.
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American tower (5.5%): This data infrastructure REIT yields approximately 3.5%. The payout has increased by almost 19% annually in the past decade.
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Real estate income (3.1%): The diversified REIT’s dividend yield is over 6%. It has increased its dividend for more than 25 years in a row.
The return of the Vanguard Real Estate ETF is around 4%. The fund offers broad access to high yield REITs at a reasonable fee (0.13% expense ratio). Since most REITs tend to grow their dividends over time, this ETF should provide investors with a steadily increasing passive income stream.
Easy Ways to Generate Passive Income
Investing in high-yielding dividend stocks and REITs is a great way to collect dividend income. ETFs like Schwab US Dividend Equity ETF and Vanguard Real Estate ETF make it even easier by giving investors direct access to these income producers. That’s why they’re great ETFs to buy for those who want to sit back and watch the income flow steadily into their accounts.
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Matt DiLallo has positions in American Tower, Prologis, Realty Income and Verizon Communications and has the following options: long January 2026 $170 calls on American Tower and short January 2026 $175 calls on American Tower. The Motley Fool holds positions in and recommends American Tower, Pfizer, Prologis, Realty Income and Vanguard Real Estate ETF. The Motley Fool recommends Verizon Communications and recommends the following options: long January 2026 $180 calls on American Tower, long January 2026 $90 calls on Prologis, and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.
2 High-Yield Dividend ETFs to Buy to Generate Passive Income was originally published by The Motley Fool
