Investing In ETFs For Dividend Income and High Returns

Let’s face it - dividends are one of the sweetest benefits of investing in the stock market. And some of the best dividends can be found by investing in ETFs. There are four high-yielding dividends ETFs that you may want to consider adding to your investment portfolio.

Below you’ll learn what these ETFs are, what they invest in, how expensive they are to own, their expense ratio, and the dividend yield you will receive with these investments.

What Are High Dividends?

First, let’s define dividends. They are a portion of a company’s profits that are distributed to the company shareholders. But high dividends are dividend payouts that are higher than the typical amount you would get from an S&P 500 index fund or total stock market index fund.

Dividends are paid out monthly, quarterly, or annually, and they are a great way to earn extra income on your investments. If you haven’t tried dividend investing before, keep these things in mind:

● Don’t chase the yield. Don’t invest purely for the high dividends, because it could be a sign that it’s a bad investment. It isn’t uncommon for a company to promise 20% in dividends, only for the company to collapse within a year or two taking your money with it. Make sure you are choosing quality investments that also pay dividends.

● Companies don’t have to maintain dividend rates. Just because a company promises a certain dividend rate, it doesn’t mean they have to maintain it in the long term. They can reduce it or cut the dividend completely.

● Have a strategy in mind. You can invest in individual stocks, ETFs, and index funds that pay high dividends, but some choices can be safer than others. For example, investing in individual stocks is akin to putting all of your eggs in one basket, and therefore is much riskier than investing in ETFs or index funds which spread your risk out more. If you are investing to earn dividends, you’re better off focusing on the latter two, as you will continue to collect dividends even if certain companies within that ETF or index fund fail.

● Dividends are constantly changing. Dividend payments are always changing, so the dividend payments you read in this article may not be the same as the dividend rate of the ETF when you read this.

● Reinvesting your dividends. Most brokerage companies give you the option to reinvest your dividend payments, which allows your portfolio to grow even faster.

● Think about which account you’re going to be using. There are tax repercussions associated with investment accounts, even if you automatically reinvest your dividends. If you’re investing in a non-tax advantaged account you’re going to be taxed on those dividend payouts.

Four High-Yielding Dividend ETFs You Should Consider Investing Investing In

1. VYM

VYM is Vanguard’s high dividend yield ETF, which has an expense ratio of 0.06% and a dividend yield of 2.80% that is paid out quarterly.

The VYM is designed to track the performances of the FTSE high dividend yield index, which is an index of companies that are characterized as having high dividend yields. The fund holds primarily large-cap stocks that are forecasted to have above-average dividend yields.

It has over 400 holdings in a diverse set of sectors, including financials, healthcare, technology, utilities, and telecommunications to name a few. Its top five holdings are:

● JP Morgan

● Johnson & Johnson

● Home Depot

● Procter & Gamble

● Bank of America

But what about performance? Well, this fund was created in 2006 and its 10-year return was 11.89%. Its returns have been consistently strong since it started.

2. SCHD

This is a high-yielding ETF with Schwab, with an expense ratio of 0.06% and a dividend yield of 2.83% that is paid out quarterly.

SCHD is designed to track the performance of the Dow-Jones U.S Dividend 100 Index, which focuses on the quality and sustainability of dividends. The fund also holds primarily large-cap stocks but also holds a small percentage of mid and small-cap stocks.

The fund contains over 100 holdings and is similar to VYM in that it holds a diverse set of sectors that includes information technology, financials, consumer staples, industrials, and healthcare. Its holdings include:

● Home depot

● Pfizer

● IBM

● Texas Instruments

● Pepsi

SCHD was created in 2011, and since then it has had an average annual return of 15.56%.

3. SDY

This is the SPDR S&P Dividend Etf, which has the highest expense ratio of these four ETFs - 0.35%. It also has a dividend yield of 2.61% that is paid out quarterly.

This ETF is designed to measure the performance of the S&P high yield dividend aristocrats index. This index holds companies that have followed the policy of consistently increasing dividends every year for 20 consecutive years.

The fund holds primarily large and mid-cap stocks, with close to 115 holdings invested in a range of sectors like financials, consumer staples, industrials, utilities, and healthcare. Its top holdings include:

● Exxon

● AT&T

● South Jersey Industries

● Chevron

● AbbVie

This fund was created in 2005, and its ten-year return was 12.9%.

4. HDV

This is iShare’s core high dividend ETF, with an expense ratio of 0.08% and a dividend yield of 3.14%. It is also paid out quarterly.

HDV is designed to track the Morningstar dividend yield focus index that focuses on relatively high dividend-paying stocks. This particular fund holds primarily large-cap stocks and has over 75 holdings. Its top sectors are energy, healthcare, consumer defense, and financial services. Its top five holdings are:

● Exxon

● Johnson & Johnson

● JP Morgan

● Verizon

● Chevron

This fund was created in 2011, and its 10-year return was 9.84%.

These are only four high-performing ETFs that are worth looking into, but there are plenty more out there. We highly recommend that you do further research, and look into both the ETFs mentioned above and other ETFs that might interest you, so you can decide if they fit your investment strategy and overall financial plan. For more information and advice on ETFs and other investment types, take a look at our articles on Our Rich Journey.