Many investors enjoy the dividend income that the stock generates on a quarterly – or in some cases, monthly basis. Some investors may not realize that exchange-traded funds (ETFs), which are baskets of stocks or other types of securities that trade on exchanges such as single stocks, can also produce dividend income like stocks. In fact, there are ETFs that are designed for the primary purpose of generating dividend income.
How does dividend work in ETFs? ETFs pay dividends based on dividends distributed within the underlying shares held by them. So, if there is an ETF that tracks S&P 500, All shares within the fund that pay dividends will be calculated and paid to ETF investors on a pro-rata basis. Dividends can also be used to reinvest in ETFs.
Although a dividend ETF will fluctuate on the basis of dividends in underlying stocks, especially in volatile markets, that diversification can be a good thing because some companies may suspend or suspend dividends, while others may increase or maintain them. Have been. If you are looking for steady income even in uncertain markets, here are two great dividend ETFs to consider: The SPDR S&P Dividend ETF (NYSEMKT: SDY) And this Invesco S&P 500 High Dividend Low Volatility ETF (NYSEMKT: SPHD).
SPDR S&P Dividend ETF: Dividend Aristocrats Only
The SPDR S&P Dividend ETF includes the best, most consistent dividend stocks in the S&P 500. In particular, it tracks the S&P High Yield Dividend Aristocrats Index, which includes only companies that have increased their dividends for at least 20 consecutive years. These are called dividend aristocrats, and they are stable, established companies with a history of strong performance.
Currently, the index consists of approximately 120 stocks. Shares in ETFs are weighted by yield, so the largest share is AT&T after Exxonmobil, National retail a quality, People are joint financial, Federal Realty Investment Trust, Legate and plot, Franklin Resources, Realty Income Corp, Purlin, And IBM. The largest stake in ETFs is only 2.14%.
As expected from the concentration of stocks that consistently produce good dividends, the ETF currently pays a quarterly dividend of $ 0.68, which comes to about $ 2.72 per share per year. The dividend has been fairly consistent, but is below $ 0.79 per share at the end of 2019. However, it has grown to around 5.7% per annum in the last three years, and it has an annual growth rate of 8.1% in the last five years. . It has a dividend yield of 2.8%, which is the percentage paid in annual dividends in relation to its stock price.
For returns, the ETF is down about 8.8% year through August 31, but has a five-year annualized return of 9.8%. This is lower than the S&P 500 in both cases, but it is an ETF that prioritizes dividend income over returns – and given its makeup of dividend aristocrats, it is ready to deliver on its mission.
Invesco S&P 500 High Dividend Low Volatility ETF: Consistent Monthly Payments
The Invesco S&P 500 High Dividend Low Volatility ETF is a good dividend ETF for these times. Investors who are wary of high market volatility and dividend uncertainty can assure that this ETF will yield consistent results. As the name suggests, the ETF tracks the S&P 500 High Dividend Low Volatility Index, which includes just 50 stocks that are considered the lowest volatile high dividend-yielding stocks in the S&P 500. It uses volatility as a screen to avoid dividends. Trap, which are stocks with dividends that look good but are not sustainable. Stocks that fall into this trap are usually more volatile.
The index looks at the top 75 dividend-producing stocks in the S&P 500 and then takes 50 from the number that has the lowest volatility. Currently, the top 10 holdings are iron Mountain, Century link, Altria group, Dow, H&R Block, Vornado Realty Trust, Ppl corp, Exxonmobil, Philip morris, And Huntington Bancshares. Utilities make up 16.9% of the portfolio, followed by real estate (14.1%), information technology (12.5%), and materials (11.9%).
The ETF generates a monthly dividend of $ 0.15, which has been fairly consistent over the past two years. The annual payout is $ 1.80 per share at a generous yield of 5.22%. It has a three-year annual growth rate of 6% and a five-year annual growth rate of around 11%. The ETF is about 19% annualized through August 31, and has posted an annualized return of about 6.2% over the past five years. This is not attractive, but it is an ETF for investors who want a safe, steady monthly income, they can rely on the most volatile, especially in markets.
There are many good dividend ETFs out there – and there are some that will produce more income per year than these – but these two ETFs are a solid alternative to stable dividends, especially in volatile times.