The reason retirees love dividend stocks is because they generate cash flow, but yield is not the only thing you have to think about. It’s also really important to know the risk, quality and growth possibilities of the stocks in your portfolio. There are various approaches to this that are valid, depending on your risk tolerance and investment needs. No matter what you make a priority, there is a good dividend ETF belongs to that niche.
1. The Vanguard High Yield Dividend
The Vanguard High Dividend Yield ETF is a straightforward and popular funds in the higher-yield business. The manager of the fund picks around 400 United States based stocks that have some of the top forecast dividends during 2022, and it is weighted by market cap. Also, it excludes REITs, which are usually over represented when it comes to dividend funds.
This Vanguard fund has a very small 0.06% expense ratio, and it pays an excellent 2.71% yield distribution. The methodology does not scrutinize stability or quality in the same way, however the current income is hard to ignore. Instead, it lowers risk through diversification. It leans more heavily towards consumer staples stocks and financials than some others on this list.
2. FlexShares Quality
The FlexShares Quality Dividend Index Fund is a nice option for retired risk-averse people who make stability a priority. The managers of the fund pick stocks based on important characteristics such as stability, cash flow, efficiency, balance sheet strength, and dividend policy. The allocation that results from this is about 130 stocks that produce a higher dividend yield than the S&P 500 does, with low valuation ratios and lower volatility when compared to the overall market.
The most obvious strength is reliability, but there’s usually a trade-off. The fund has a 1.85% distribution yield which is a little lower among dividend-focused ETFs, and it may fall a little short of your retirement earnings needs. Its 0.37% expense ratio is a little high. That means that investors would be getting close to 1.5% in yield, that revenue and net of fees could be taxed.
3. WisdomTree United States Dividend Growth
The WisdomTree United States Dividend Growth Fund uses the above quality dividend technique, but it also focuses on growth potential in place of historical outcomes. It also incorporates some allocation caps to make sure that it is not overexposed to any one sector or company. This methodology has resulted in a portfolio of around 300 stocks that lean slightly more toward smaller businesses.
This growth fund has some disadvantages that are similar with a fairly high 0.28% expense ratio and a relatively lower 1.78% distribution yield, but the possibility for growth attracts the younger retired individuals who are needing to balance their growth with income. Growth is a good feature to hedge against inflation and help protect your lifestyle during the later years of your retirement. That focus on expanding dividends has supported the WisdomTree and helped the fund perform better than the FlexShares ETF in overall returns since inception.
Author: Blake Ambrose