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For most investors, this is a game to stick in for the long haul. That includes novice investors with decades ahead of them before they clock out for the last time and even retirees. The average retirement actually lasts around 20 years. And for a long-term stream of passive income, many investors are resorting to dividend ETFs. These professionally managed funds invest in sometimes hundreds of dividend paying stocks that deliver regular payments in addition to potential capital appreciation.
But there are hundreds out there and not all are created equal. The top dividend ETFs screen companies for more than just yield. They look at strong financial indicators like revenue and cash flow. They may seek multiple avenues of generating income like selling options in addition to investing in stocks. They may also seek preferred stocks or those with less volatility compared to their peers. But even here, the arena can seem packed. So for the long-term investor, we narrowed it down to seven dividend ETFs you can hold for the next 20 years.
Schwab U.S. Dividend Equity ETF (SCHD)
The Schwab U.S. Dividend Equity ETF (SCHD) is a very popular fund among dividend investors. It invests in high-quality companies known for consistently distributing high dividends as well as having strong fundamentals like earnings and cash flow relative to their peers. This screening process seems reliable as it goes beyond just handpicking stocks with high yields. In some cases, distressed companies offer higher than usual yields to attract investors.
But SCHD delivers a reliable yield of 4%. This is high, but not high enough to seem risky. This passively managed fund tracks the Dow Jones U.S. Dividend 100 Index. And it’s diversified across broad market sectors. However, its main concentration is in the energy, consumer staples and healthcare sectors. This could be an added bonus as the last two are considered defensive sectors. These are composed of companies that generally remain resilient even in times of market turmoil.
And the fund holds net assets of more than $71 billion, indicating a certain degree of consumer confidence. Plus, SCHD shines for its low expense ratio of 0.06%. This makes it highly competitive amongst similar funds. Expense ratios are key components of any ETF valuation strategy as high fees can seriously eat away at your returns. Moreover, the SCHD has performed well with a five-year return of more than 30%.
Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation ETF (VIG) may have a slightly lower yield than most ETFs on this list at just over 1%. But yield isn’t everything. VIG invests in high-quality, large-cap companies with histories of increasing their dividends year after year. Remember, a company can choose to decrease, increase or eliminate dividend payments all together. This gives investors a sense of stability and security.
And VYG has generated an impressive five-year return of more than 30%. Plus, the fund also stands out for diversification. It invests in more than 300 stocks across multiple sectors. Its main holdings are concentrated within the communication services, consumer discretionary and consumer staples sectors. Its holdings also include tech giants in the Magnificent Seven. Moreover, Vanguard has become an industry leader when it comes to low-fee funds. And VYG is no exception with an expense ratio of 0.05%.
Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF (VYM) stands out for diversification. It invests in more than 500 stocks of companies believed to have above-average dividend yields, making this fund a dividend stock powerhouse. It generates a yield of 2.45%, which is around average. However, it has delivered a five-year return of over 56%. The fund’s main holdings are in the basic materials, consumer discretionary and consumer staples. Moreover, the fund holds assets of more than $84 billion. And like VYG, it has an ultra low expense ratio of 0.06%.
Amplify CWP Enhanced Dividend Income ETF (DIVO)
The Amplify CWP Enhanced Dividend Income ETF (DIVO) takes a slightly different approach to generating income than the other funds on our list. DIVO invests in high-quality, large-cap companies that have track records of increasing dividends and earnings.
This could give the investor the potential for steady income and capital growth. Moreover, the fund also writes covered calls on these stocks. It strategically invests across sectors and chooses to overweight or underweight these sectors based on various factors. The 20 to 25 stocks it invests in are also screened for strong financial components like earnings, cash flow and return on equity. And it generates an impressive yield of 5%. Meanwhile, it has delivered a five-year return of around 35%. But it has a slightly higher expense ratio than other funds on our list at 0.56%.
iShares Preferred & Income Securities ETF (PFF)
The iShares Preferred & Income Securities ETF (PFF) invests in preferred stocks, which may have the characteristics of high-yield bonds. Moreover, preferred stocks tend to have higher yields than ordinary stocks. And PFF delivers a yield of just around 7%. The fund is heavily concentrated in the financial sector with more than 65% of its holdings comprising this unit. But it also offers exposure to the industrial and utilities sectors. The fund holds net assets of more than $14 billion. And it has an expanse ratio of 0.45%.
Vanguard International High Dividend Yield Index Fund (VYMI)
The international counterpart of VYM gives you global exposure. The Vanguard International High Dividend Yield Index Fund (VYMI) invests in non-U.S. stocks deemed to offer above-average yields. VYMI offers a yield of over 3%. Plus, it has a five-year return of over 42%. The fund is globally diversified across global sectors, mainly in emerging markets, Europe and the Pacific.
SPDR Portfolio S&P High Dividend ETF (SPYD)
The SPDR Portfolio S&P High Dividend ETF (SPYD) seeks out stocks of big name companies that offer high-yields. In fact, it invests in the 80 highest yielding stocks in the S&P 500. And SPYD offers a yield of nearly 5%. Its main holdings are in real estate, financials and consumer staples. Additionally, the fund has more than $7 billion in net assets. And it has a competitive expense ratio of 0.07%.