Best ETFs for Dividends

With the market trending lower over recent quarters, dividend ETFs have grown more popular than formerly high flying tech stocks.

Dividend ETFs have long proven to be a profitable investment strategy, providing both diversification and stability to investment portfolios. But what are the best ETFs to earn dividends?

3 Best ETFs For Dividends 

SPDR S&P 500 High Dividend ETF

Founded in 1993, SPDR S&P 500 High Dividend ETF trades on the New York Stock Exchange under the stock ticker SPY.

The SPDR S&P 500 ETF (SPY) is the most popular ETF by volume, and more than 100 million shares exchange hands on an average trading day.

The ETF began trading at its initial public offering price of around $44 per share. As of May 2022, the ETF has a net asset value of around $417 billion and is trading at around $415 per share.

The SPY’s 52-week low is $404.00, and its 52-week high is $479.98. In terms of dividend returns, the ETF provides investors with a 1.30% average yield.

The top ten holdings of the SPDR S&P 500 High Dividend ETF include:

  • Apple Inc. (AAPL)
  • Microsoft Corp. (MSFT)
  • Amazon.com Inc (AMZN)
  • Meta Platforms Inc. (FB)
  • Alphabet Inc. A (GOOGL)
  • Alphabet Inc. C (GOOG)
  • Berkshire Hathaway Inc. B (BRK.B)
  • Tesla Inc. (TSLA)
  • NVIDIA Corp. (NVDA)
  • JP Morgan Chase & Co (JPM)

The SPY has one thing going for it that most other ETFs do not: Warren Buffett’s vote of confidence. He is so much a fan of the S&P 500 that he has claimed following his death his wife’s holdings will be invested not in his own beloved Berkshire Hathaway but instead in the S&P 500.

That’s a nod to the risk that is associated with any specific company, particularly its leadership. A poor leader taking control of Berkshire or any other company could hurt its future prospects. By diversifying risk across 500 CEOs of the top companies in the S&P 500, risk is greatly reduced.

To buy and hold SPY you will pay a fee annually, but it’s very low, currently sitting at just 0.09%. To put that in perspective, for every $1,000 you invest in SPY, the cost to you will be just $9 a year.

Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF began trading on the New York Stock Exchange under the stock ticker VIG.

In 2006, the ETF began trading at around $49 per share. As of May 2022, the ETF has a net asset worth of around $79.4 billion and is trading at around $154 per share.

Overall, VIG’s 52-week low is $150.44, and its 52-week high is $172.87. In addition, the ETF provides investors with a 1.48% average dividend yield.

The top ten holdings of the Vanguard Dividend Appreciation ETF include:

iShares High Dividend Equity Fund

In 2011, iShares High Dividend Equity Fund began trading on the New York Stock Exchange under the stock ticker HDV.

The HDV ETF began trading for an IPO or initial public offering price of around $53 per share. As of May 2022, the ETF has a net asset worth of around $8.9 billion and is trading at around $104 per share.

In addition, the HDV’s 52-week low is $93.48, and its 52-week high is $110.91. In terms of dividend returns, the ETF provides investors with a 3.56% average dividend yield.

The top ten holdings of the iShares High Dividend Equity Fund include:

Holding HDV is very cheap. Indeed, the HDV expense ratio sits at just 0.08%, ranking it among the lowest cost exchange traded funds on the market.

Why Invest In ETFs?

What Is an ETF? An ETF refers to an exchange-traded fund.

Investing in ETFs is a great way for investors to diversify their portfolios in a lower risk manner than buying select stocks where risk is concentrated in a few names.

At first glance, ETFs appear quite similar to mutual funds. While the two are quite similar, the key difference is that ETFs can be purchased and sold on the stock exchange like an individual stock.

Essentially, ETFs hold a multitude of investment types, from stocks to commodities to bonds which provide investors avenues for diversifying their investment portfolios.

Some of the top benefits of investing in ETFs include:

  • ETFs provide portfolio diversification by giving exposure to a group of equities, market segments, and styles.
  • ETFs trade like a stock, giving them the trading liquidity of equity.
  • ETFs distribute dividends to shareholders just as stocks do.
  • ETFs can be purchased on margin and sold short.
  • ETFs allow investors to manage risk by trading futures and options just like a stock.
  • ETFs have lower fees compared to actively managed funds like mutual funds.
  • ETFs have limited capital gains tax and can be more tax-efficient compared to mutual funds.

Overall, investing in ETFs is a simple strategy for building long-term wealth. Adding any of the three dividend-focused ETFs outlined above will likely serve your investment portfolio well with long-term investing in mind.

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