Investors are seeking dividend payouts to replace the yields they used to get from bonds. Since the financial crisis in 2008, the Federal Reserve has held interest rates near record lows, punishing savers who had depended on fixed income holdings for steady returns.
The S&P 500’s dividend yield is about 2 percent, compared with 2.5 percent for the 10-year U.S. Treasury bill. With the Federal Reserve planning to raise interest rates three times this year, bond prices will fall as yields rise.
“Every investor desirous of developing an ETF-based portfolio does well to start by selecting a few core holdings,” according to a post by ETF Monkey on the Seeking Alpha blogsite. “With their core intact, many investors wish to bolster their portfolio with a healthy dividend stream. In U.S. stocks, there are two basic segments: high dividend yield and dividend growth.”
The investor put together a list of 3 exchange-traded funds to provide steady dividends for investors seeking an alternative to bonds.
iShares Core High Dividend ETF (HDV): “This ETF seeks to track the investment results of the Morningstar Dividend Yield Focus Index composed of relatively high-dividend-paying U.S. equities. It takes a little different approach than the Vanguard High Dividend Yield ETF (VYM). Whereas VYM contains 419 stocks, HDV only contains 74. At the same time, I like how they are selected. They are screen for financial health using two approaches.
Schwab US Dividend Equity ETF (SCHD): “This ETF seeks to track the investment results of the Dow Jones U.S. Dividend 100 Index composed of relatively high dividend paying U.S. equities. The index screens both for a 10-year history of paying dividends as well as strong financial ratios. While this stringent process eliminates certain high-payers, and therefore drops the distribution yield a little bit, it leaves this ETF as a wonderful choice for conservative investors.”
Vanguard High Dividend Yield ETF (VYM): “VYM tracks the FTSE High Dividend Yield Index, which represents the U.S.-only component of the FTSE All-World High Dividend Yield Index. It contains 419 stocks, with its Top 10 entities comprising 31.9 percent of the total.”
“I don't think you can go wrong with any of these ETFs as a tool to increase the dividend income generated by your portfolio,” according to ETF Monkey.
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