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Dividend ETFs are one of the best investments retirees can make. You need passive income and limited volatility to navigate your golden years, and these vehicles offer both. Dividend income can supplement Social Security and provide cash for your lifestyle and basic needs. Meanwhile, the diversification offered by ETFs helps dilute risk and limit how much your portfolio can fluctuate in value. As always, the trick is to determine which ones are best in class and best suited to your investment goals.
1. The Vanguard High Dividend Yield ETF
The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is a simple and effective tool that provides diversified dividend income. This fund holds more than 400 stocks, the vast majority of which are large caps. Stocks are selected on the basis of expected dividends and then weighted according to market capitalization.
This is perhaps the most passive strategy that can be applied to a more selective ETF than an index fund. This translates to an ultra-low expense ratio of 0.06%, which is ideal for investors looking to keep costs low. It is also a large fund with nearly $ 39 billion in assets under management and over $ 100 million in daily trading volume. This means that it is very liquid, so it is easy to sell and will not reduce your returns with a high bid-ask spread.
Its distribution yield of 2.78% is nothing to write home about, but it remains well above the S&P 500 average, especially under current market conditions. The Vanguard High Dividend Yield ETF is a simple, straightforward option for retirees who don’t want to think too much about it and don’t need to look for high returns.
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2. ProShares S&P 500 Dividend Aristocrats ETF
The ProShares S&P 500 Dividend Aristocrats ETF (NYSEMKT: NOBL) Significantly reduces the reach of the Vanguard High Yield fund by only holding stocks with an exceptional historical pedigree. This ETF holds 66 stocks, all of which are constituents of the S&P 500 that have increased their dividends each of the past 25 years.
These dividend aristocrats have demonstrated that they can sustain growth and profit margins over the long term, and that they are committed to returning cash flow to their shareholders. Equities are also weighted equally within the portfolio, so larger companies do not overly dictate performance.
This retrospective approach focuses on proven stability rather than future opportunities. As a result, the distribution yield is 1.92% more pedestrian. Investors also have to pay a higher expense ratio of 0.35%. Still, this is a great ETF if you value peace of mind or want to buy an ETF that doesn’t just track major stock market indices.
3. Global X SuperDividend ETF
The Global X SuperDividend ETF (NYSEMKT: SDIV) is a big departure from vanilla methodologies, so it’s great if you’re looking for something off the beaten path. This ETF holds the 100 highest yielding stocks that pass liquidity and financial stability tests.
Nor is it limited to large-cap US companies – it includes companies from around the world, including emerging markets. The resulting allocation is much more oriented towards international, mid and small cap stocks. This methodology generates an excellent dividend yield without compromising too much on the quality of the company.
Global X SuperDividend ETF shareholders are subject to the higher volatility inherent in investing in emerging and small-cap markets, but it could be worth it for retirees. The ETF is currently reporting an impressive payout yield of 7.51%, which is more than enough to justify its high expense ratio of 0.59%. It’s a little less liquid than the other funds on this list, but that shouldn’t be a problem for most retirees, especially if you’re looking to hold it for the long term for income.
These ETFs might not be right for everyone’s retiring allowance, but they each serve a different role that could be the perfect addition to your portfolio. Keep in mind that the performance of distributions is subject to change based on market conditions and company policy. There are dozens of great ETF options for retirees, but these three are worth a look from anyone looking for low-risk investments.
This article represents the opinion of the author, who may disagree with the “official†recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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