5 High Yielding Dividend ETFs You Can Buy to Generate Passive Income

Who wouldn’t want passive income? By definition, it’s money that just comes to you, without you having to work for it. You don’t have to work, inherit money from a rich relative, or even rob a bank for this money.

There are many potential sources of passive income, and not all of them will appeal to everyone. For example, you can buy real estate and rent it out, but that does require some effort and some knowledge of real estate. If you buy a fixed annuity, you can also collect monthly payments, but you usually have to pay a significant amount for that annuity up front.

Five attractive high dividend ETFs

So consider exchange traded funds (ETFs) with high dividends. They work much like mutual funds, but they trade like stocks, and some offer solid dividend yields while also delivering potential growth. Here are five to investigate further – plus a bonus.

Source: Morningstar.com, as of June 24, 2024.

*Vanguard does not offer SEC returns. This is the ETF’s recent ‘unadjusted effective return’.

If the table above doesn’t seem exciting enough, this might help: Imagine you have (or are retiring) a $500,000 portfolio with an overall average dividend yield of 3.5%. That’s enough to generate $17,500 in passive income every year. For example, if you currently earn $80,000 per year, that’s the same as receiving an additional 22% bonus annually.

Now that you’re more interested in these ETFs, let’s take a quick look at each one.

iShares Preferred & Income Securities ETF

This ETF specializes in preferred stocks, not the common stocks that most of us invest in most of the time. Don’t expect preferred stocks to appreciate very much in value, or for their dividend payments to grow much. They often pay fixed dividends, but also often offer excessive returns.

Schwab US Dividend Equity ETF

This index fund tracks the Dow Jones US Dividend 100 index, which consists of high-yielding US stocks that have consistently paid dividends. The largest holdings recently were Texas Instruments, AmgenAnd Lockheed Martin.

The story continues

Vanguard Real Estate ETF

Real estate investment trusts (REITs) own many properties and earn income by renting them out. Because owning actual property can be difficult and expensive, if you want to make a profit from real estate, consider investing in an ETF like this. Owning a REIT can be seen as “the really lazy way to be a landlord.” This ETF’s top holdings have recently been listed Prologis, American towerAnd EquinixThey specialize in warehouses, telecommunications towers and digital infrastructure, among other things.

Vanguard High Dividend Yield ETF

This ETF aims to replicate the returns of the FTSE High Dividend Yield Index, minus the low fees. It focuses on high-yielding US stocks from the FTSE Global Equity Index Series (excluding REITs), and recent top holdings include Broadcom, JPMorgan ChaseAnd ExxonMobil.

iShares Core Dividend Growth ETF

This ETF holds holdings in companies that not only pay meaningful dividends, but also have a track record of growing their payouts. Dividend growers can be particularly powerful portfolio drivers, and this ETF’s top holdings have been just that recently Apple, Microsoftand ExxonMobil.

Vanguard S&P 500 ETF

Finally, here’s a bonus dividend-paying ETF. This S&P 500 index fund’s returns aren’t huge, but it makes up for that with a solid track record of growth. The returns in the table above show how it generally compares to the other recommended funds, but don’t expect returns that high going forward. The stock market’s long-term average annual gain is closer to 10% than 15%. Investing in the S&P 500 can provide you with a measure of passive income from dividends, along with share price appreciation.

There are plenty of other solid ETFs to explore, many with meaningful dividend yields. There are also plenty of ETFs and stocks with fatter dividend yields, though they may also offer lower historical yields and/or more risk. So dive into some or all of these or a few others, and you should be able to set yourself up for a lot of passive income.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Selena Maranjian has positions in American Tower, Amgen, Apple, and Microsoft. The Motley Fool has positions in and recommends American Tower, Apple, Equinix, JPMorgan Chase, Microsoft, Prologis, Texas Instruments, Vanguard Real Estate ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Amgen, Broadcom, and Lockheed Martin. The Motley Fool has a disclosure policy.

5 High-Yield Dividend ETFs to Buy to Generate Passive Income was originally published by The Motley Fool