The Vanguard High Dividend Yield ETF can replace the S&P 500 Index in your portfolio.
The Schwab U.S. Dividend Stocks ETF uses a complex screening process to select 100 financially strong dividend stocks with growing dividends.
The Amplify CWP Enhanced Dividend Income ETF combines high-quality companies with covered calls to generate income and growth.
10 stocks we like better than the Charles Schwab U.S. Dividend Stocks ETF ›
Investing is hard work. The process doesn’t stop once you buy a stock, as you must continually track every investment you add to your portfolio. If you’re looking for a way to simplify your investing life, consider exchange-traded funds (ETFs).
If you focus on income, your best bet today is Vanguard High Dividend Yield ETF(NYSE: VYM), Schwab U.S. Dividend Stocks ETF(NYSE: SCHD)and, for the more adventurous types, Amplify CWP Enhanced Dividend Income ETF(NYSE:DIVO). Here’s a quick look at each.
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this S&P 500 Index(SNPINDEX:^GSPC) It is the de facto standard for most investors to track the market. Many investors simply buy an S&P 500-tracking ETF and call it a day. However, if you like dividends, the tiny 1.1% yield offered by the S&P 500 will be a problem for you. The Vanguard High Dividend Yield ETF gives you substantial diversification just like you would by tracking an index with the S&P, but given its 2.4% yield, its income stream is more than twice as large.
The Vanguard High Dividend Yield ETF is fairly simple. It tracks an index that covers all U.S. dividend stocks and ranks them by yield. The top 50% of options with the highest returns go into market-cap-weighted exchange-traded funds. Currently, the company holds approximately 560 stocks. The Financials sector has the largest weighting, accounting for about 21% of assets, but is fairly well diversified thereafter. At the same time, the expense ratio is very low at 0.06%.
A $100 investment only gets you a fraction of the stock, which most brokers allow these days. However, if you’re just starting out, this is a good choice for dividend enthusiasts focused on diversification. If you can’t afford to buy a small portion of the stock, it might be worth saving an extra $50 or so to buy the entire stock.
The Vanguard High Dividend Yield ETF takes a broad approach, while the Schwab US Dividend Equity ETF takes the opposite approach, holding only 100 stocks that have passed a fairly complex screening process. This ETF first considers only companies (excluding real estate investment trusts) that have increased their dividends for at least 10 years. It then creates a composite score that looks at cash flow versus total debt, return on equity, dividend yield, and the company’s five-year dividend growth rate. The top 100 stocks are included in the ETF and have market capitalization weighting.
While there are many moving parts, the bottom line is that Charles Schwab US Dividend Stocks seeks to invest in financially strong, well-managed companies with high yields from growing dividends. This is essentially what most dividend investors are looking for, making it a solid choice for anyone trying to simplify their dividend investing life. Add in a very modest 0.06% expense ratio and a very attractive 3.7% yield, and you can see why this ETF has attracted over $70 billion in assets.
The best part, however, is that the Schwab U.S. Dividend Stocks ETF provides investors with generally rising stock prices and generally rising dividends over time. Therefore, you can receive both capital appreciation and income from one diversified investment. You can buy about three shares for $100.
Options ETFs are all the rage these days, and some of them offer incredible double-digit yields. Typically, ultra-high yields are accompanied by steady declines in stock prices. If you’re interested in option income funds, you should probably be cautious about an ETF like the Amplify CWP Enhanced Dividend Income ETF. The yield is “only” 4.5%, but the fund’s value has steadily increased over time. As a result, investors are receiving attractive income streams and capital appreciation.
The Amplify CWP Enhanced Dividend Income ETF is an actively managed ETF, which is why its expense ratio is slightly higher (0.56%). Essentially, management selected a portfolio of approximately 30 dividend-paying stocks that they believed had strong businesses and attractive growth prospects. It then strategically sells covered call options to generate additional income. Covered calls are generally considered the lowest-risk options strategy you can participate in.
The caveat here is that the dividend will vary based on the success of management’s covered call approach. A $100 investment would buy you approximately two shares of the Amplify CWP Enhanced Dividend Income ETF.
The beauty of ETFs is how they simplify your investing life. The thing about ETFs is that even if you focus solely on dividend investing, you have a lot of different investment options to choose from.
The diversified Vanguard High Dividend Yield ETF, the screen-based Schwab US Dividend Equity ETF and the options-driven Amplify CWP Amplified Dividend Income ETF are three good options to get started. They cover a wide range of dividend investment options and can even be combined into a single portfolio if desired.
Before you buy shares of the Schwab US Dividend Equity ETF, consider the following factors:
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Reuben Gregg Brewer holds positions in the Amplify ETF Trust-Amplify Cwp Enhanced Dividend Income ETF and the Schwab US Dividend Equity ETF. The Motley Fool owns and recommends the Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.
3 Dividend ETFs to Buy with $100 and Hold Forever Originally posted by Motley Fool
