Investing for income is a smart strategy for many investors, whether they are looking to support themselves in retirement or grow their wealth through additional investments. One way to generate passive income from your investments is by focusing on dividend-paying stocks. Exchange-traded funds (ETFs) that are specifically designed to invest in dividend-paying shares can be a great option for investors looking to build a portfolio that generates regular income.
According to a Hartford Funds report, the average annual returns for different categories of dividend-paying stocks can help investors understand the potential benefits of being a dividend investor. Dividend growers and initiators have an average annual total return of 10.19%, while dividend payers have an average return of 9.17%. On the other hand, companies that do not change their dividend policy have an average return of 6.74%, while dividend non-payers have a lower return of 4.27%. Companies that reduce or eliminate their dividends have a negative return of (0.63%). Comparatively, the equal-weighted S&P 500 index has an average return of 7.72%.
When it comes to choosing dividend ETFs, there are several solid contenders in the market. Some of the top dividend ETFs to consider include the SPDR Portfolio S&P 500 High Dividend ETF (SPYD), the Schwab U.S. Dividend Equity ETF (SCHD), the iShares Core Dividend Growth ETF (DGRO), the Vanguard Dividend Appreciation ETF (VIG), and the Vanguard S&P 500 ETF (VOO). Each of these ETFs offers a different yield and average annual return, allowing investors to choose the one that best fits their investment goals and risk tolerance.
One standout option for dividend investors is the Vanguard Dividend Appreciation ETF. This ETF tracks the S&P U.S. Growers Index, which focuses on companies that have consistently increased their dividend payouts for at least 10 consecutive years. By excluding stocks with very high yields, the ETF aims to invest in companies with strong fundamentals and sustainable dividend growth potential. Some of the top holdings in the ETF include well-known companies like Apple, Broadcom, JPMorgan Chase, Microsoft, and UnitedHealth Group.
One key advantage of the Vanguard Dividend Appreciation ETF, like many Vanguard funds, is its low expense ratio of just 0.06%. This means that investors pay only a small fee for the management of the fund, allowing them to keep more of their investment returns. While the recent yield of the ETF may seem low at 1.69%, the power of dividend growth should not be underestimated. Over time, the dividends paid out by the ETF have been steadily increasing, providing investors with a growing stream of passive income.
In conclusion, investing in dividend ETFs can be a lucrative strategy for investors looking to generate passive income from their investments. By focusing on companies with a history of increasing dividends, investors can benefit from both regular income and potential share price appreciation. Whether you choose the Vanguard Dividend Appreciation ETF or another dividend ETF, building a portfolio of solid dividend payers can help you achieve your financial goals and secure your financial future.
