Buy-and-Hold Dividend ETFs That Build Income for a Lifetime

Sometimes, it’s as simple as picking the right ETFs and hanging onto them for many years (or more than a decade) and letting the distributions keep flowing into one’s pocket. Undoubtedly, picking and choosing individual dividend stocks is also a good idea to enhance the average yield of one’s portfolio. However, for many passive investors, I do think that sticking with a handful of high-quality dividend ETFs (and maybe leaving a little room for a riskier, but much-higher-yielding premium income ETF) at one’s core is a smart move.

In this piece, we’ll look at two dividend ETFs that I view as great picks for passive investors looking to build a strong foundation for their portfolios as they head into retirement. Of course, even for those who are many years away from retiring, I’d still look to add positions in the following ETFs, which stand to get much more bountiful over time as their holdings increase their dividends.

SPDR Portfolio S&P High Dividend ETF

The SPDR Portfolio S&P High Dividend ETF (NYSEARCA:SPYD | SPYD Price Prediction) is a terrific ETF for investors who want to screen out all the lower-yielding stocks within the S&P 500.

What’s left behind? Some large-cap names have dividends that are large enough to meet the needs of certain income investors. Today, the yield is hovering around 4.3%, which is quite generous. With a more hands-off approach, the SPYD has a really low expense ratio of 0.07%, which is pretty competitive with your run-of-the-mill index fund.

The SPYD’s sector mix is heavily tilted towards real estate, utilities, and financials, with less in the way of tech exposure. The limited tech exposure might actually be a good thing, especially if you’re in the belief that it’s tech that’s causing the S&P 500 to be “fairly highly priced,” as Fed Chairman Jerome Powell recently remarked.

In any case, there might be an added bonus to having more exposure to the higher-yielding corners of the S&P. For one, valuations, on average, are more tame, and the betas stand to be a bit lower than the S&P itself. At the time of this writing, the SPYD has a 0.96 five-year beta, meaning the ETF has a hair less volatility than the S&P.

In short, the SPYD ETF may be a great fit for income seekers looking for an efficient, low-cost way to drive their yield more than 3% higher than the S&P. However, do note that one’s growth (and dividend growth) will be muted compared to the S&P.

Global X SuperDividend U.S. ETF

The Global X SuperDividend U.S. ETF (NYSEARCA:DIV) is another interesting option for income investors who are comfortable with taking a bit more risk for a lot more yield. The 6.5%-yielding ETF has a 0.72 beta and has more exposure to deeper value names. Of course, with a higher yield comes far less growth expectations.

Given the heavy emphasis on REITs, I view the payout as safe, but not primed for much, if any, growth over the medium term. Additionally, there are some no-growth companies in the mix, like Altria (NYSE:MO), that stand to have declining revenues. Indeed, that might not bode well for the longer-term dividend health, but over the foreseeable future, I view the dividend as secure.

In any case, the Global X stands out as a more aggressive option for income investors. And with the higher expense ratio (0.45%), income investors should think carefully about whether the DIV is the right fit for them. If there are high-income needs, I’m not against supplementing an income portfolio with such a high-yielder that really puts the “super” in super dividend.

As always, consult a financial adviser if you’re really looking to raise the bar on your yield well above the 5% mark. They’ll explain all the technicalities as well as the risks.