Passive Income: What’s Not to Like? It is money that comes to you without you having to actively work for it. There are many types of passive income, such as income from rental properties and interest from bonds.
A particularly powerful type of passive income is from dividend-paying stocks, as they offer the opportunity for share price appreciation, dividend income, and dividend growth. However, it can be difficult to shop around for the best dividend payers out there, so you may instead want to simply park your long-term dollars in one or more exchange-traded funds (ETFs) that focus on dividend income.
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An ETF is a fund that trades like shares and often also tracks a specific index. Here are nine high-yield ETFs to consider. (Note that some have yields currently on the high side, while others have lower yields that are likely to grow faster.)
While these ETFs focus on generating income, keep in mind that they are not the only ETFs that pay dividends. Actually a simple one S&P500 The index fund is also a dividend payer, as many of the 500 companies in the S&P 500 pay dividends. The S&P 500 recently had a dividend yield of almost 1.3%.
Check out these ETFs below, which are very dividend-focused. An S&P 500 index fund is shown at the end of the table for comparison. Note that I’m including a fairly large group because I’m trying to include funds from several major fund companies. I do this because, depending on which company manages the 401(k) account at your workplace, if you have such an account, you may be able to invest through your 401(k) in one or more of the funds below.
|
ETF |
Recent yield |
5 years Avg. Annual return |
10 years Avg. Annual return |
|---|---|---|---|
|
iShares Preferred & Income Securities ETF (NASDAQ: PFF) |
6.00% |
3.11% |
3.95% |
|
SPDR Portfolio S&P 500 High Dividend ETF (NYSEMKT: SPYD) |
4.18% |
8.67% |
N/A |
|
Schwab US Dividend Equity ETF (NYSEMKT: SCHD) |
3.61% |
13.05% |
12.02% |
|
Fidelity High Dividend ETF (NYSEMKT: FDVV) |
2.87% |
14.91% |
N/A |
|
Vanguard ETF with high dividend yield (NYSEMKT: VYM) |
2.65% |
11.34% |
10.53% |
|
iShares Core Dividend Growth ETF (NYSEMKT: DGRO) |
2.24% |
12.59% |
12.49% |
|
SPDR S&P Dividend ETF (NYSEMKT: SDY) |
2.22% |
9.55% |
10.42% |
|
Vanguard Dividend Valuation ETF (NYSEMKT: VIG) |
1.65% |
12.93% |
12.33% |
|
First Trust Rising Dividend Achievers ETF (NASDAQ: RDVY) |
1.49% |
15.05% |
13.21% |
|
Vanguard S&P 500 ETF (NYSEMKT: VOO) |
1.3% |
16.07% |
13.70% |
Data source: Morningstar.com, as of October 22, 2024.
Here you will find some information about each of these funds.
-
iShares Preferred & Income Securities ETF: This is full of approximately 443 US preferred stocks and hybrid securities. Keep in mind that preferred stocks generally don’t appreciate much in value, and their dividends aren’t typically big growers either, but they do tend to provide generous passive income.
-
SPDR Portfolio S&P 500 High Dividend ETF: With this ETF you invest in the 80 highest-yielding shares within the S&P 500 index.
-
SPDR S&P Dividend ETF: This ETF contains approximately 133 stocks from the S&P 1500 Composite Index that have increased their dividends for at least 20 consecutive years.
-
Schwab US Dividend Equity ETF: This ETF tracks the Dow Jones US Dividend 100 Indexwhich focuses on 100 high-yield US stocks with solid fundamentals and consistent payments.
-
Vanguard ETF with high dividend yield: This ETF tracks the FTSE High Dividend Yield Index of high-yielding companies and recently included about 550 of them.
-
First Trust Rising Dividend Achievers ETF: This ETF focuses on the Nasdaq US Rising Dividend Performers index of about 50 companies of varying sizes that have paid growing dividends and appear healthy enough to continue doing so.
-
Vanguard Dividend Valuation ETF: This ETF tracks the S&P American Dividend Growers Index of approximately 340 large-cap stocks with a solid record of dividend increases.
-
iShares Core Dividend Growth ETF: This ETF is also an ETF that focuses on US stocks, of which there are about 400, that consistently pay dividends – and even increase them.
-
Fidelity High Dividend ETF: This ETF includes approximately 107 mid- and large-sized companies that are ready to continue paying and increasing their dividends.
The above list may seem overwhelming, so here are some thoughts to help you make decisions:
-
If your workplace 401(k) plan is managed by Fidelity, Schwab, or Vanguard, you may find one or more of the above funds among the investments you can choose from.
-
There is often a trade-off between growth and returns. So the preferred stock ETF offers the highest recent return here, almost 6%, but that return won’t grow much.
-
The S&P 500 index fund at the bottom of the chart has the lowest return, but the highest average annual profit.
-
You can divide your dollars between one or a few funds with higher returns and one or a few funds that are likely to rise in price quickly. (Note that some ETFs have even higher growth rates, although they typically pay little dividends.)
-
Never forget the power of dividend growth. Don’t write off small dividends if they’ve grown quickly – so don’t ignore some of the smaller returns in the table above if the ETF focuses on dividends that grow. Consider, for example Automatic data processingwhich recently returned 1.93%. But take a look at the dividend history and you’ll see a recent annual dividend of $5.60 per share, up from $4.37 in 2022 and $3.28 in 2019. Buying ETFs with small but fast-growing dividends can be a great move in the long run term.
If you want to look even further afield at ETFs that generate a lot of passive income, you can look at ETFs that invest through junk bonds and options, or lower volatility ETFs.
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Selena Maranjian holds positions in Schwab US Dividend Equity ETF. The Motley Fool holds and recommends Vanguard Dividend Appreciation ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.
9 High-Yield Dividend ETFs to Buy to Generate Passive Income was originally published by The Motley Fool
