The importance of dividends to total investor returns – especially when reinvested – cannot be overstated. From 1960 to 2021, reinvested dividends accounted for 84% of the total return Standard & Poor’s 500according to the Hartford Trusts.
In other words, dividends can be solid. If you’re looking to invest in dividend-paying stocks, look no further than dividend-focused exchange-traded funds (ETFs).
ETFs that prioritize dividends can offer the advantage of higher returns as well as diversification, which is one of the cornerstones of investing. Here are three top-tier dividend ETFs.
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1. Vanguard Corporation for High-Return Profits
The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) It is a popular option with a fairly broad approach to the shares it holds. Excluding REITs, the fund consists of 443 public US companies that have paid above-average dividends in the past 12 months. With the Vanguard High Dividend Yield ETF, investors will learn about large-cap companies that cover all 11 sectors. Since their market capitalization is weighted, larger companies make up the bulk of the fund.
The great thing about this ETF is its low cost with an expense ratio of just 0.06%. A small difference in ratios may not seem like much on paper, but higher expense ratios can erode your returns over time. With a 12-month delayed payout of $3.20 per share (or a return of 3.0% as of this writing), it’s also in line with some of the higher-yielding ETFs.
2. SPDR S&P Dividend ETF
The SPDR S&P Dividend ETF (NYSEMKT: SDY) More selective in the stocks it includes, only checking companies that have consistently increased their dividends for at least 20 consecutive years. Although this is five years less than it takes to earn the title of Dividend Aristocrat, this ETF is still made up of several of them, providing a bit more reliability.
The index is weighted by dividends, so the higher the company’s return, the more it is represented in the fund. There are only 119 companies, but the largest holding company, Franklin Resources, only 1.85% of it. The companies inside the fund are selected every January and re-weighted every quarter.
The fund has paid out $3.35 over the past year (about a 2.7% return). However, one downside to the SPDR S&P Dividend ETF is the expense ratio, which comes in at a slightly higher price than the other options at 0.35%.
3. iShares Core High Dividend ETF
The iShares Core High Dividend ETF (NYSEMKT: HDV) She is the most selective of the three listed here, owning only 75 US stocks that the fund has vetted for financial soundness. These ETFs are mostly made up of large-cap stocks, which are a bit heavier than other ETFs with the three biggest holdings – ExxonMobilAnd the Johnson & JohnsonAnd the chevron – Make up more than 19% of the fund. The top three sectors — healthcare, energy, and consumer goods — also make up about 58% of the fund.
With a payout of $3.16 – 12 months (or 3.1% return), it can be a profitable option for investors looking to kill two birds with one stone with significant dividends and investments. It’s also low cost with a 0.08% expense ratio.
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Stefon Walters has no position in any of the stocks mentioned. Motley Fool has positions in the ETF and recommends Vanguard High Dividend Yield. Motley Fool recommends Johnson & Johnson. Motley Fool has a disclosure policy.