3 Tier One ETFs for Stock Dividends | Smart Switch: Personal Finance

It cannot be overstated how critical dividends can be to investors’ total return, especially when reinvested. From 1960 to 2021, dividends reinvested represented 84% of the total profitability of the S&P 500according to Hartford Funds.

In other words, dividends can be powerful. If you’re looking to invest in stocks that pay dividends, look no further than dividend-focused exchange-traded funds (ETFs).

Dividend-first ETFs can provide the benefit of higher dividend yields and diversification, one of the key pillars of investing. Here are three top-tier dividend ETFs to review.

1. Vanguard High Dividend Yield ETF

the Vanguard High Dividend Yield ETF (NYSEMKT: VYM) it is a popular option with a fairly broad focus on the stocks it owns. excluding REITs, the fund consists of 443 US public companies that have paid above-average dividends in the previous 12 months. With the Vanguard High Dividend Yield ETF, investors will gain exposure to large-cap companies spanning all 11 sectors. And since it is weighted by market capitalization, the largest companies make up the majority of the fund.

A great advantage of this ETF is its low cost with an expense ratio of only 0.06%. A small difference in percentages may not seem like much on paper, but higher expense ratios can reduce your earnings over time. With payments of the last 12 months of $3.20 per share (or 3.0% yield as of this writing), is also in line with some of the best paying dividend ETFs.

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2. SPDR S&P Dividend ETF

the SPDR S&P Dividend ETF (NYSEMKT: SDY) it’s a bit more selective in the stocks it includes, only looking for companies that have consistently increased their dividends for at least 20 consecutive years. Although that is five years less than what it takes to reach the dividend aristocrat title, this ETF still consists of many of them, providing a little more sense of reliability.

The index is weighted by dividend yield, so the higher a company’s yield, the higher its representation in the fund. There are only 119 companies in total, but the largest holding company, Franklin Resources, only represents 1.85% of it. Fund companies are selected each January and re-weighted each quarter.

The fund paid $3.35 over the past year (about a 2.7% return). However, one drawback to the SPDR S&P Dividend ETF is its expense ratio, which is slightly more expensive than other options at 0.35%.

3. iShares Core High Dividend ETF

the iShares Core High Dividend ETF (NYSEMKT: HDV) it is the most selective of the three listed here, with only 75 US stocks whose financial health the fund has assessed. This ETF consists primarily of large-cap stocks, and is slightly heavier than the other ETFs with the top three holdings: exxonmobile, Johnson and JohnsonY Chevron — constituting more than 19% of the fund. The top three sectors (healthcare, energy and consumer staples) also account for around 58% of the fund.

With a payout of $3.16 over the past 12 months (or a 3.1% yield), it can be a lucrative option for investors looking to kill two birds with one stone with dividends and large-cap investing. It is also low cost with an expense ratio of 0.08%.

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Stephen Walters has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Vanguard High Dividend Yield ETF. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.