Exchange-traded funds (ETFs) are great passive investment vehicles. They hold baskets of stocks or other investments, which helps provide diversification and reduce risk. Because of this, you don’t have to spend any time managing these investments.
Many ETFs are designed to generate income, making them ideal investments for those who want a portfolio that will provide them with reliable passive income. The Vanguard High Dividend Yield ETF(NYSEMKT: VYM ) And iShares Preferred and Income Securities ETF(NASDAQ: PFF ) Two are wonderful Dividend ETFs.
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Vanguard High Dividend Yield ETF Focuses on keeping normal Stock On average Dividend yield. The fund currently offers a yield of around 2.7%— more than double the average yield S&P 500That has been the hover Recently about 1.2%.
To put that in perspective, a $1,000 investment in this ETF would generate about $27 in dividend income each year. That compares with about $12 in dividend income for an ETF tracking the S&P 500. This ETF provides That high A low cost income stream. of this expense ratio is 0.06%, It means The fund charges investors an annual fee of $0.60 for every $1,000 invested.
The fund’s portfolio currently includes 536 stocks, but with a heavy allocation to its top holdings. five the biggest The positions are:
Broadcom (4.4% of fund assets): 1.3% dividend yield.
JP Morgan Chase (3.6%): 2% yield.
ExxonMobil (3%): 3.4% yield.
home depot (2.2%): 2.1% yield.
Procter & Gamble (2.2%): 2.3% yield.
Those top five account for more than 15% of its total assets. However, it is worth noting that these are some of the highest-quality dividend stocks in the world. They have long streaks Your payments are increasing and is stronger Financial profile.
This dividend growth is significant. This has enabled the fund to distribute more income to investors every year. Additionally, the fund’s value has been rising fairly consistently over time.
While this past performance is no guarantee that the fund will continue to generate growing streams of dividend income, its high concentration in high-quality, high-yielding dividend stocks bodes well for the future. It should be able to provide investors with a growing income stream while also increasing the value of their investment.
iShares holds preferred and income securities ETFs Preferred stock and hybrid securities. These investments behave like a combination of a bond and a stock. They have a higher fixed payout, and are riskier investments than bonds but not as risky as common stocks.
This ETF has a yield of about 6% — much higher than the Vanguard Fund — and It distributes monthly. Its expense ratio is also high at 0.46%.
The fund currently has 441 holdings – mostly positions in preferred stock issued by major financial institutions such as Wells Fargo, Citigroupand JP Morgan. Financial institutions make up about 75% of its portfolio. The fund also holds preferred and hybrid securities from industrial companies (about 16%) and utilities (about 10%).
The fund’s monthly payouts are relatively constant.
Similarly, as the chart shows, the price of the fund Also Tend to be relatively stable. Changes in interest rates are the main factors that affect its value. As interest rates rise, the value of the fund’s holdings declines, increasing income. This is because preferred stocks have a higher risk profile than bonds. Their higher yields compensate investors for taking on that greater risk.
The Vanguard High Dividend Yield ETF and the iShares Preferred and Income Securities ETF are ideal for generating passive income. The Vanguard High Dividend Yield ETF offers a steadily growing income stream, while the iShares Preferred and Income Securities ETF supplies a high-yielding, relatively stable stream of passive income. Funds can be a the great Income generating tandem
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Citigroup is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. JP Morgan Chase is an advertising partner of Motley Fool Money. Matt DeLallo Holds positions at Broadcom, Home Depot, and JPMorgan Chase. The Motley Fool has positions in and recommends Home Depot, JPMorgan Chase, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Broadcom. Motley Fool has a Disclosure Policy.
