Passive income and exchange-traded funds represent two of the most important concepts in the market. So, investors may want to consider the next logical step: combining these two elements together in the form of dividend-paying ETFs. It’s really one of the most remarkable vehicles available to you.
Let me break the fourth wall for you. Whether it’s at InvestorPlace or some other resource, you’re inundated with various ideas for passive-income-providing enterprises. But when you consider the ideas in totality, you could be looking at hundreds of compelling opportunities. These range from stable dividends to a mixture of growth and income to the high-yield stuff.
It can all be overwhelming. So, why not grab a basket of securities? That way, you distribute the risk across a wide canvas, mitigating your risk profile. At the same time, you kick back and collect the divvies. It’s quite a deal and on that note, below are dividend-paying ETFs to consider.
Schwab U.S. Dividend Equity ETF (SCHD)
One of the more popular ideas among dividend-paying ETFs, Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) tracks the performance of multiple enterprises with robust yields. The individual holdings feature strong fundamentals relative to sector rivals. In addition, the companies also feature potential for capital gains, thus giving a mixed blend for investors.
Geographically, per the prospectus, the vast majority of the SCHD fund stems from the U.S. (99.3% of holdings). The rest hail from the U.K. (0.6%) and Latin America (0.1%). In terms of sector weighting, SCHD is mostly tied to financial services at 17.11%. That’s followed by healthcare (15.65%) and consumer defense (14.43%).
The top individual holding is Amgen (NASDAQ:AMGN), which makes up 4.12% of total net assets. That’s followed by AbbVie (NYSE:ABBV) at 4.10% and Cisco Systems (NASDAQ:CSCO) at 4.09%. The fund also features big oil giants, thus providing extra breadth for both income and capital appreciation. With so much going for it, SCHD ranks among the best dividend-paying ETFs to consider.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
Another enticing idea for dividend-paying ETFs, ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) tracks the benchmark index S&P 500 Dividend Aristocrats. As you might guess, this fund focuses on enterprises that have increased their payouts for at least 25 consecutive years. If you’re looking for high-quality and reliable ideas, NOBL is difficult to beat.
That’s especially true with the current environment. The economy is still shaky while we’re headed toward a contentious election cycle. Also, geopolitical tensions and flashpoints can easily worsen, upsetting broader stability. That might impact growth-focused ideas badly. On the other hand, dividend aristocrats may be able to ride out the turmoil.
Most of the individual names are located in the U.S. (96.7%). In terms of sector weighting, the consumer defensive space carries the most at 23.91% of the portfolio. Industrials comes a close second at 22.89%. Some of the most popular and well-known companies like Walmart (NYSE:WMT) make up the top holdings.
If you’re concerned about the market but still want to participate in equities, give NOBL a look.
Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is almost sure to attract attention among a wide swath of investors. Per its prospectus, the fund tracks the performance of the FTSE High Dividend Yield Index. The underlying benchmark consists of U.S.-based enterprises that analysts project should offer above-average dividend yields.
Primarily, VYM offers an “accelerated” risk-reward profile. By that, I’m referring to the risk distribution concept behind all ETFs. When you own a basket of securities (as opposed to just one), you spread your risk across a wide canvas. Second, the reward component: all of these ideas feature higher-than-average payouts. In a way, you’re getting the best of both worlds.
It’s also important to remember a key “administrative” benefit: VYM features an expense ratio of only 0.06%. In contrast, the category average stands at 0.41%.
Most of the individual holdings are in the U.S. (98.1%), with a smattering in several other nations/regions. Finally, the financial services sector features the largest weighting at 20.85%, followed by consumer defensive at 12.89%. It’s easily one of the most attractive dividend-paying ETFs to consider.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
