These 3 Dividend ETFs Are a Retiree’s Best Friend

Investing in exchange-traded funds can help retirees solve two challenges they might face in the golden years. Markets change, innovations bring new companies to the forefront, and the profitable companies of today may not be the profitable companies of tomorrow. First, it can ease the pain that comes from researching individual stocks and stressing over which choices to make. 

The second challenge to solve is how to generate consistent income in order to replace the once-timely paychecks. Dividend ETFs that pay a monthly dividend, such as the Invesco S&P 500 High Dividend Low Volatility ETF SPHD 0.94% ), can help retirees enjoy a well-managed budget. Let’s take a look at that one, plus two others, each with something different to offer retirees looking for a best friend in their investment portfolio.

1. Invesco S&P 500 High Dividend Low Volatility ETF

As its name implies, this ETF aims to track an index that focuses on the S&P 500 stocks that deliver the highest dividends with the lowest volatility. It limits the reliance on specific sectors, spreading out the balance. A higher asset weight targeting utilities and consumer non-durables, combined with a broader spectrum of stock holdings, provides for more consistency and lower volatility. Rebalancing by the fund’s management team twice a year helps adjust for changing market conditions.

The expense ratio is on the higher side at 0.30%, and a somewhat low 45% total annual return — compared to the S&P 500’s 80% — total annual return over the past five years could be a turnoff, but the trade-off is that the low volatility aspect can help during a challenging market, as noted by the 5.3% gain year to date, compared to the 4% loss experienced by the S&P 500 index. It also offers the primary benefit of timely and more abundant income from monthly dividend payouts — as opposed to the more common quarterly schedule — making it easier to manage a budget when the years of timely paychecks are a thing of the past. 

Among the top holdings in the ETF’s bucket of 51 stocks are a few Dividend Aristocrats — including Warren Buffett favorites AbbVie, Chevron, and Kraft Heinz — helping the fund deliver an annual dividend of $1.60 per share at a dividend yield of 3.65%, which is three times that of the S&P 500’s 1.3% yield. That $1.60 equates to an extra $13 per month if you own 100 shares; this may not seem like much but can sure help during times of inflation, like right now.

2. Vanguard High Dividend Yield ETF

There certainly seems to be no secrecy when it comes to the naming convention for dividend ETFs. The Vanguard High Dividend Yield ETF VYM 0.60% ) is a good fit for retirees wanting to get the most out of their dividend while benefiting from a low cost to do so — at a ground-level 0.06% expense rate. The primary goal of this fund is to track the performance of the FTSE® High Dividend Yield Index, which measures the investment return of stocks delivering high dividend yields. 

There is a heavy focus on large-cap value companies in stable industries such as healthcare, financials, consumer, energy, and industrials. Companies within those segments provide consistency due to the essential nature of the products being sold, leading to recurring purchases regardless of market conditions. The ETF casts a wide net capturing over 400 stocks that it tracks, while providing some risk management by only having an asset weight of 23.4% in its top 10 holdings.

Among the top 10 holdings are multiple Dividend Kings, including…

Continue Reading at The Motley Fool