Exchange-traded funds (ETFs) are excellent passive investment vehicles. They hold baskets of stocks or other investments, which helps provide diversification and reduce risk. This means you don’t have to spend time managing these investments.
Many ETFs are designed to generate income, making them ideal investments for those who want a portfolio that gives them reliable passive income. The Vanguard ETF with high dividend yield (NYSEMKT: VYM) and the iShares Preferred and Income Securities ETF (NASDAQ: PFF) are two excellent dividend ETFs.
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The Vanguard ETF with a high dividend yield focuses on retention Ordinary supplies with higher than average dividend yields. The fund currently offers a return of approximately 2.7% — more than double the average yield of the S&P500that hung recently around 1.2%.
To put that into perspective, a $1,000 investment in this ETF would generate about $27 in dividend income every year. That compares to about $12 in dividend income for an ETF that tracks the S&P 500. This ETF offers that higher income stream at low costs. Are expense ratio amounts to 0.06%, it means charges investors $0.60 annually in fees for every $1,000 invested in the fund.
The fund’s portfolio currently includes 536 stocks, but with heavier allocations to the top holdings. The five largest positions are:
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Broadcom (4.4% of fund assets): 1.3% dividend yield.
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JPMorgan Chase (3.6%): 2% yield.
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ExxonMobil (3%): 3.4% yield.
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Home Depot (2.2%): 2.1% yield.
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Procter & Gamble (2.2%): 2.3% yield.
The top five account for more than 15% of the total assets. However, it’s worth noting that these are some of the highest quality dividend stocks in the world. They have long stripes grow and have their payouts strong financial profiles.
That dividend growth is important. It has enabled the fund to return more income to investors each year. Furthermore, the fund’s price has shown a fairly consistent increase over time.
While this past performance is no guarantee that the fund will continue to generate growing streams of dividend income, the higher concentration in the highest quality, high-yielding dividend stocks bodes well for the future. It should be able to provide investors with an increasing income stream while increasing the value of their investment.
The iShares Preferred and Income Securities ETF owns preference shares and hybrid securities. These investments behave like a combination of a bond and a share. They typically have higher fixed payouts and are riskier investments than bonds, but not as risky as common stocks.
This ETF has a yield of about 6% – much higher than the Vanguard fund – and makes his payments monthly. The expense ratio is also higher, at 0.46%.
The fund currently has 441 positions – mainly positions in preferred shares issued by leading financial institutions such as Wells Fargo, Citi Groupand JPMorgan. Financial institutions make up almost 75% of the portfolio. The fund also holds preferred and hybrid securities of industrial companies (nearly 16%) and utilities (nearly 10%).
The fund’s monthly payments tend to be relatively stable.
Likewise, as the chart shows, the price of the fund Also tends to be relatively stable. Changes in interest rates are the main factors affecting price. As interest rates rise, the values of the fund’s investments tend to fall, increasing the income yield. This is because preference shares have a higher risk profile than bonds. Their higher returns compensate investors for taking that greater risk.
The Vanguard High Dividend Yield ETF and the iShares Preferred and Income Securities ETF are ideal for generating passive income. The Vanguard High Dividend Yield ETF offers a steadily increasing income stream, while the iShares Preferred and Income Securities ETF offers a higher-yielding, relatively steady stream of passive income. The funds can consist of a Great income-generating tandem.
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Citigroup is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Matt DiLallo has positions in Broadcom, Home Depot and JPMorgan Chase. The Motley Fool has positions in and recommends Home Depot, JPMorgan Chase, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Broadcom. 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
