In today’s fast-paced world, most of us rely on our active income—our salary—to meet financial goals. However, there’s a more appealing and sustainable source of income to explore: passive income. This type of income flows to you regularly without requiring continuous effort, giving you the freedom to live more comfortably or even grow your wealth. One of the most popular forms of passive income is dividend income, which is generated through investments in dividend-paying stocks.
For investors looking to tap into passive income without the hassle of selecting individual stocks, high-yield dividend ETFs (Exchange-Traded Funds) offer a simple solution. These funds pool money from multiple investors to invest in a range of dividend-paying stocks, allowing you to diversify your portfolio and receive regular dividend payouts. In this article, we’ll explore 5 high-yield dividend ETFs that are great for generating passive income and also discuss 5 other solid options to consider.
Why Consider Dividend ETFs?
Dividend-paying ETFs are designed to provide regular cash flows, which can be reinvested or used for living expenses. The dividend yield is the percentage of the ETF’s value that you will receive as annual payouts, and this yield can vary greatly from one fund to another. Some ETFs provide high yields, while others offer lower yields but potentially more long-term growth.
When choosing dividend ETFs, it’s essential to consider factors beyond just the dividend yield. Some funds may offer lower initial yields but provide higher dividend growth over time, leading to a more substantial income in the long run. In addition, if you’re willing to prioritize long-term growth over immediate payouts, you might prefer an ETF that focuses on capital appreciation.
Now, let’s look at some high-yield dividend ETFs you should consider for your portfolio, along with some additional compelling options.
5 High-Yield Dividend ETFs to Buy for Passive Income
- iShares Preferred and Income Securities ETF (PFF)
- Dividend Yield: High
- Focus: Preferred Stocks
- Why It’s Compelling: The iShares Preferred and Income Securities ETF invests in preferred stocks, a hybrid asset class that combines characteristics of both stocks and bonds. These stocks don’t typically appreciate much in value, but they offer generous dividend payouts. If you’re looking for consistent income, PFF can be a great choice.
- Schwab U.S. Dividend Equity ETF (SCHD)
- Dividend Yield: Solid
- Focus: U.S. Dividend-Paying Stocks
- Why It’s Compelling: This ETF tracks the Dow Jones U.S. Dividend 100 Index, which includes stocks from high-quality companies that have consistently paid dividends for over 10 years. Schwab U.S. Dividend Equity ETF offers both strong yield and a solid performance record, making it a reliable choice for long-term passive income.
- Vanguard Dividend Appreciation ETF (VIG)
- Dividend Yield: Moderate
- Focus: Dividend Growth Stocks
- Why It’s Compelling: The Vanguard Dividend Appreciation ETF focuses on companies that have a track record of increasing their dividends over time. While its yield is moderate, the fund emphasizes dividend growth, which is ideal for those seeking a steady income boost over the years.
- SPDR S&P Dividend ETF (SDY)
- Dividend Yield: High
- Focus: S&P 1500 Dividend-Paying Stocks
- Why It’s Compelling: The SPDR S&P Dividend ETF targets high-yield dividend stocks from the S&P 1500 Index. With a focus on companies that have consistently increased dividends for over 20 years, SDY is a strong option for investors seeking high yield and dividend stability.
- Vanguard High Dividend Yield ETF (VYM)
- Dividend Yield: High
- Focus: High-Yield Stocks
- Why It’s Compelling: Vanguard High Dividend Yield ETF targets stocks that are known for paying high dividends. The fund includes well-established companies in sectors such as utilities and consumer goods, providing a steady income with a strong yield.
5 Other Dividend ETFs Worth Considering
- Vanguard S&P 500 ETF (VOO)
- Dividend Yield: Moderate
- Focus: S&P 500
- Why It’s Compelling: The Vanguard S&P 500 ETF tracks the performance of the S&P 500 Index, which includes many companies that pay dividends. Though its dividend yield might not be as high as other ETFs on this list, it offers a solid long-term growth potential and a diversified portfolio of top U.S. companies.
- iShares Core Dividend Growth ETF (DGRO)
- Dividend Yield: Moderate
- Focus: Dividend Growth
- Why It’s Compelling: The DGRO ETF focuses on companies with strong dividend growth potential. This ETF is ideal for investors who want to build long-term wealth through a mix of growth and passive income.
- SPDR S&P 500 High Dividend ETF (SPYD)
- Dividend Yield: High
- Focus: S&P 500 High-Yield Stocks
- Why It’s Compelling: The SPDR S&P 500 High Dividend ETF focuses on high-yielding stocks within the S&P 500, delivering a good dividend payout with the stability of well-established companies.
- iShares Select Dividend ETF (DVY)
- Dividend Yield: High
- Focus: High-Dividend U.S. Stocks
- Why It’s Compelling: This ETF invests in U.S. companies that offer the highest dividend yields, focusing on the utilities and consumer staples sectors. With a solid dividend track record, DVY is a strong choice for income-focused investors.
- Invesco QQQ Trust (QQQ)
- Dividend Yield: Moderate
- Focus: Technology & Growth Stocks
- Why It’s Compelling: While the Invesco QQQ Trust isn’t primarily a dividend ETF, it does offer payouts from the companies in the Nasdaq-100 Index, including top technology stocks. If you’re looking for growth potential and moderate income, QQQ is a great option to consider.
Conclusion:
High-yield dividend ETFs provide a great way to generate passive income while benefiting from the growth potential of diversified portfolios. Whether you’re interested in immediate high payouts or long-term growth, there’s an ETF to suit your needs. From iShares Preferred and Income Securities ETF for those seeking stable income, to Vanguard Dividend Appreciation ETF for long-term growth, there’s a wide range of options for every investor.
Before choosing an ETF, consider the dividend yield, growth potential, and sector diversification that align with your financial goals. While some ETFs offer high yields now, others may provide better growth in the future. Always remember that past performance isn’t an indicator of future results, so it’s wise to do your research before investing.
Reference : Selena Maranjian