You may be eager to dive into the world of investing. But the task can seem daunting. Maybe you don’t know a thing about the stock market. And the thought of carefully analyzing and picking stocks may feel like you need a master’s degree in finance. Perhaps, you think it’s too risky – especially if you remember any serious market crashes in your lifetime. Or maybe, you may believe you don’t have enough money to invest and the stock market is for the rich.
But advances in technology have made it quite simple and affordable to become an investor. And for those beginners who believe they may not have the time and know-how to build a winning portfolio that could guide you smoothly into retirement, they can turn to exchange-traded funds (ETFs). These are funds that invest in a handful of stocks that can stretch into the hundreds. And they’re hand-picked by asset management professionals, some with decades of experience. Plus, they’re known for low fees.
And there’s more. Some ETFs pay dividends. These are regular payments companies make out of their profits. You can think of it as a bonus in addition to any appreciation you may get from the share price of the ETF.
But there are also hundreds of dividend-paying ETFs out there. So to narrow down the list, we picked three dividend ETFs we believe may sit well in a beginner’s portfolio. So let’s dig in.
Schwab U.S. Dividend Equity ETF (SCHD)
The Schwab U.S. Dividend Equity ETF (SCHD) serves as part of the core in many dividend investors’ portfolios and there’s good reason. SCHD invests in 101 high-quality companies with a consistency in paying out dividends. And it generates a high yield of about 3.51%. Many experts suggest that yields of about 3% to 4% are solid for sustainable growth.
Meanwhile, yields of 7% can, but not always, be signs of risk. In some cases, distressed companies offer high yields to attract investors.But SCHD has more to offer. It’s also performed quite well. It has a five-year return of about 40.35%. It also delivered a 1-year return of about 13.57% and a year-to-date return of about 14.22%.
Moreover, the fund is well-diversified. Its top holdings are companies in energy, consumer staples and healthcare. The latter two are known as defensive sectors. These generally tend to remain resilient even during market downturns.
Here’s a current breakdown of SCHD’s portfolio.
- Energy: 19.88%
- Consumer Staples: 18.50%
- Health Care: 16.20%
- Industrials: 12.10%
- Financials: 9.68%
- Consumer Discretionary: 8.47%
- Information Technology: 8.20%
- Communication Services: 4.27%
- Materials: 2.66%
- Utilities: 0.04%
And here’s another kicker. SCHD has an expense ratio of 0.06%. Expense ratios are fees charged by fund companies. So high ones can take a serious bite out of your returns. Moreover, SCHD holds $78.4 billion in net assets, which could indicate consumer confidence.
Vanguard High Dividend Yield ETF (VYM)
Those looking for wide diversification among high-yield stocks may not look further than the Vanguard High Dividend Yield ETF (VYM). This popular ETF among dividend investors holds more than 500 stocks. These stocks are projected to deliver higher-than-average yields. VYM currently pays a yield of 2.33%.
The fund’s main holdings are companies in the financial sector. Here’s a look into its portfolio.
- Basic Materials: 2.20%
- Consumer Discretionary: 10%
- Consumer Staples: 8.80%
- Energy: 9.10%
- Financials: 20.90%
- Health Care: 12.50%
- Industrials: 13.80%
- Technology: 12.90%
- Telecommunications: 3.60%
- Utilities: 6.20%
Moreover, VYM has also been performing well. It has a five-year return of about 62%. And it has also delivered a 1-year return of about 15.69% and a year-to-date return of 8.42%.
In addition, Vanguard is known for offering funds with some of the lowest fees in the industry. And the VYM has a competitive expense ratio of 0.06%.
iShares Core Dividend Growth ETF (DGRO)
Those looking for dividend potential can look into the iShares Core Dividend Growth ETF (DGRO). This ETF was designed to invest in companies with histories of consistently growing dividends.
One of its main holdings are companies in the information technology sector, which has generally benefited from the recent boom in artificial intelligence (AI).
Here’s a look at its portfolio breakdown.
- Financials: 19.28%
- Health Care: 17.32%
- Information Technology: 14.64%
- Consumer Staples: 13.19%
- Industrials: 12.89%
- Utilities: 7.15%
- Consumer Discretionary: 6.19%
- Energy: 6.11%
- Materials: 2.81%
- Cash and/or Derivatives: 0.28%
- Communication: 0.14%.
Additionally DGRO also stands out for its performance. It has a five-year return of about 59.42%, a 1-year return of about 15.58% and a year-to-date return of 5.46%.
Plus, it has a low expense ratio of 0.08% and net assets of about $37.5 billion.
Top Gaining Stocks
Top Losing Stocks