Social Security does not mean an easy retirement. A typical payout will usually only replace around 40% of your income. Investing in dividend stocks is one way to solve this retirement-destroying problem, but focusing on just a few dividend stocks can also be risky.
The solution? Look for exchange-traded funds (ETFs) that give high dividends so you can have diversification on top of income. These three Vanguard funds are the best places to begin.
Vanguard High Dividend Yield
The Vanguard High Dividend Yield ETF (VYM) is the top dividend ETF in the country. It includes an index of 411 companies with its largest focus being the financial sector (22.4%), and second being the healthcare sector (13.2%), and consumer staples (12.5%).
This fund has an annual yield of around 2.85%. That’s double the S&P’s 1.42% from this past year.
The VYM tracks the FTSE High Dividend Index which ranks stocks by estimated dividend yields and focusing on the higher-paying ones.
Vanguard Real Estate Index (VNQ)
REITs are among of the most reliable dividend sources. This is because they are legally forced to pay at least 90% of their income to shareholders.
The Vanguard Real Estate Index Fund (VNQ) has around 95% equity REITs. It invests the remaining amount in development and management. The VNQ’s 12-month yield as of February was 3.22%.
The fund has 174 stocks that reach over the commercial real estate sector. Specialized REITs, like those that invest in data centers, cell towers, and self-storage, make up 36.8% of its assets, with second being residential (13.7%), then industrial (10.4%), and retail (10.2%), and finally healthcare (8.9%).
With almost $64 billion in its portfolio, the VNQ is the largest REIT ETF in the country.
Vanguard International High Dividend Yield (VYMI)
If you want to expand your investments beyond American stocks, look into the Vanguard International High Dividend Yield (VYMI). It is the international form of Vanguard’s High Dividend Yield Fund.
This ETF has 1,197 international stocks with the largest holdings being in Japan, the UK, Canada, Taiwan, and Australia. But 28% of its stocks are in growing markets.
The VYMI’s 12-month yield is 3.13%, right over its U.S.-based sister fund. While this fund is somewhat riskier, that extra risk could be worth it for the diversification and greater growth potential.