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Retirees looking for a bit of relative stability and a bit of extra yield may wish to check out the broader basket of dividend-focused ETFs. Undoubtedly, there’s a lot to pick from, whether you’re looking for a pure equity-focused ETF with exposure to above-average yielders with great financial health and decent growth prospects, or if you don’t mind paying a slightly higher expense ratio to leverage covered calls into the equation for premium income on top of dividends paid out.
With intense volatility spreading across the tech scene, perhaps income and a low-beta strategy are a better way to go for the first half of the year. Believe it or not, consumer staples and other defensive corners of the market are finally having their moment to shine.
In this piece, we’ll narrow down to two dividend ETFs that I think might make for a decent fit for retirees or those who are close to being.
Schwab U.S. Dividend Equity ETF
Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) and many other dividend-focused, value-heavy ETFs are starting to go parabolic. Undoubtedly, the action seems to be suggestive of a risk reversal to start the year. Either way, shares of the 3.82%-yielding ETF are now up 10% year to date. And the outperformance might not yet be over, especially if the S&P gets dragged down by tech.
With a 0.69 beta, the Schwab U.S. Dividend Equity ETF might not be bothered at all by the sell-off in software. And if an AI bubble does end up popping, this ETF might not be held back, especially as investors rush to rotate back into the proven, boring dividend payers.
While the Schwab U.S. Dividend Equity ETF may already be one of the most popular of its class, I still think that, relative to the risk-on parts of the market, there’s still room for heavy inflows. Whether you’re a retiree seeking a bit more yield or if you simply want something stabler and more diversified (less tech-heavy) than the S&P, this ETF stands tall in an environment that’s starting to reward more of a risk-off mentality.
Given that the ETF tracks the Dow Jones U.S. Dividend 100 Index (that’s different from the Dow Jones Industrial Average), you can expect to pay far lower fees. With an expense ratio of 0.06%, you’re pretty much getting one of the best deals in the high-dividend ETF scene. Perhaps it’s the solid relative performance to other dividend ETFs, the slightly lower beta, and the rock-bottom fees that make the ETF a go-to option for many retirees.
iShares Select Dividend ETF
The iShares Select Dividend ETF (NASDAQ:DVY) currently yields 3.65%, which is on the low end of the historic range, after gaining more than 7% year to date. Undoubtedly, it’s been a hot start to the year for dividend ETFs. And as one of the more value-centric ETFs out there, a valuation-driven correction in the S&P might actually work out in the iShares Select Dividend ETF’s favor.
You won’t get many exciting names in the top holdings of the ETF, but what you will get is relative predictability and added stability once the market really stands to get rocked.
The 0.77 beta is higher than that of the Schwab U.S. Dividend Equity ETF, so I guess it comes down to which top-10 holdings you prefer and what exact traits you favor most. With a mere 16.1 times trailing price-to-earnings (P/E) multiple, this ETF stands out for bigger fans of deeper value. If a growth-to-value rotation does pan out, this ETF might be the one to stash away for the medium term.
The expense ratio currently sits at a reasonable 0.38%. Though it’s not the lowest fees in the world, I do find it worth paying if you prioritize value, low volatility, and yield in that order.