Passive income — what’s not to like? It’s money that comes to you without your having to actively work for it. There are many kinds of passive income, such as income from rental properties and interest from bonds.
A particularly powerful kind of passive income is that from dividend-paying stocks, because they offer the chance of stock-price appreciation, dividend income, and dividend growth. It can be hard to hunt for the best dividend payers out there, though, so you might instead want to simply park your long-term dollars in one or more exchange-traded funds (ETFs) that focus on dividend income.
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An ETF is a fund that trades like a stock — and often tracks a particular index, too. Here are nine high-yield ETFs to consider. (Note that some have yields that are currently on the high side, while others feature lower yields that are likely to grow faster.)
While these ETFs are focused on delivering income, understand that they’re not the only dividend-paying ETFs out there. In fact, a simple S&P 500 index fund is a dividend payer, too — because many of the 500 companies in the S&P 500 pay dividends. The S&P 500 recently sported a dividend yield near 1.3%.
Check out these ETFs below, which are very dividend-focused. At the end of the table is an S&P 500 index fund, for comparison. Note that I’m including a fairly big bunch because I’m trying to encompass funds from several major fund companies. I’m doing so because depending on which company administers the 401(k) account at your workplace, if you have such an account, you might be able to invest in one or more of the funds below via your 401(k).
ETF
Recent Yield
5-Year Avg. Annual Return
10-Year Avg. Annual Return
iShares Preferred & Income Securities ETF(NASDAQ: PFF)
6.00%
3.11%
3.95%
SPDR Portfolio S&P 500 High Dividend ETF (NYSEMKT: SPYD)
4.18%
8.67%
N/A
Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD)
3.61%
13.05%
12.02%
Fidelity High Dividend ETF (NYSEMKT: FDVV)
2.87%
14.91%
N/A
Vanguard High Dividend Yield ETF(NYSEMKT: VYM)
2.65%
11.34%
10.53%
iShares Core Dividend Growth ETF (NYSEMKT: DGRO)
2.24%
12.59%
12.49%
SPDR S&P Dividend ETF(NYSEMKT: SDY)
2.22%
9.55%
10.42%
Vanguard Dividend Appreciation ETF (NYSEMKT: VIG)
1.65%
12.93%
12.33%
First Trust Rising Dividend Achievers ETF(NASDAQ: RDVY)
1.49%
15.05%
13.21%
Vanguard S&P 500 ETF(NYSEMKT: VOO)
1.3%
16.07%
13.70%
Data source: Morningstar.com, as of Oct. 22, 2024.
Here’s a little information on each of these funds.
iShares Preferred & Income Securities ETF: This is full of about 443 U.S. preferred stocks and hybrid securities. Note that preferred stocks generally don’t appreciate much in value, and their dividends aren’t usually big growers, either — but they do tend to deliver generous passive income.
SPDR Portfolio S&P 500 High Dividend ETF: This ETF will have you invested in the 80 highest-yielding stocks within the S&P 500 index.
SPDR S&P Dividend ETF: This ETF features about 133 stocks from within the S&P 1500 Composite Index that have increased their dividends for at least 20 consecutive years.
Schwab U.S. Dividend Equity ETF: This ETF tracks the Dow Jones U.S. Dividend 100 Index, which is focused on 100 high-yielding U.S. stocks with solid fundamentals and consistent payments.
Vanguard High Dividend Yield ETF: This ETF tracks the FTSE High Dividend Yield Index of high-yielding companies and recently encompassed around 550 of them.
First Trust Rising Dividend Achievers ETF: This ETF is focused on the Nasdaq US Rising Dividend Achievers index of about 50 companies of various sizes that have been paying growing dividends and seem healthy enough to continue doing so.
Vanguard Dividend Appreciation ETF: This ETF tracks the S&P U.S. Dividend Growers Index of about 340 large-cap stocks with a solid record of dividend increases.
iShares Core Dividend Growth ETF: This ETF is another one focused on U.S. stocks, around 400 of them, that have been consistently paying — and increasing — dividends.
Fidelity High Dividend ETF: This ETF features around 107 medium-sized and large companies that are poised to keep paying and increasing their dividends.
The list above might seem overwhelming, so here are some thoughts that can guide your decision-making:
If your workplace 401(k) plan is administered by Fidelity, Schwab, or Vanguard, you might find one or more of the funds above among the investments you can choose from.
There’s often a trade-off between growth and yield. So the preferred-stock ETF here features the highest recent yield, near 6%, but that yield isn’t going to grow much.
The S&P 500 index fund at the bottom of the chart sports the lowest yield, but the highest average annual gains.
You might split your dollars between one or a few funds with fatter yields and one or a few that are likely to appreciate in price rapidly. (Note that some ETFs have even bigger growth rates, though they tend to pay little in dividends.)
Never forget the power of dividend growth. Don’t write off small dividends if they’ve been increasing rapidly — and, thus, don’t discount some of the smaller yields in the table above if the ETF is focused on dividends that are growing. For example, consider Automatic Data Processing, which recently sported a yield of 1.93%. But look into its dividend history, and you’ll see a recent annual dividend of $5.60 per share, up from $4.37 in 2022 and $3.28 in 2019. Buying ETFs with smallish but rapidly growing dividends can be a great long-term move.
If you want to look even further afield for ETFs that are cranking out lots of passive income, you might look into some that invest via junk bonds and options, or some that feature lower volatility.
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Selena Maranjian has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.
