If you're approaching or entering retirement -- and, really, even if you're far from retirement -- consider including a big bunch of dividend-paying stocks in your portfolio. You can expect healthy and growing companies that pay dividends to increase in value over time and to generate cash for you regularly. Their dividend payouts will tend to increase over time, too.
Retirees can use that cash to help support themselves, and pre-retirees might just reinvest those dividends into more shares of stock. (Some good brokerages offer to reinvest your dividends for you automatically.)
Image source: Getty Images.
Don't underestimate the power of dividends. After all, the fact that a company has committed to paying a dividend means that it has grown to a point where management is confident that earnings will support such a payout. Dividend payers tend to outperform non-payers, too.
Check out the numbers for S&P 500 companies below, from a Hartford Funds report:
Dividend-Paying Status | Average Annual Total Return, 1973-2023 |
---|---|
Dividend growers and initiators | 10.19% |
Dividend payers | 9.17% |
No change in dividend policy | 6.74% |
Dividend non-payers | 4.27% |
Dividend shrinkers and eliminators | (0.63%) |
Equal-weighted S&P 500 index | 7.72% |
Data source: Ned Davis Research and Hartford Funds.
One of the best -- and easiest -- ways to invest in dividend-paying stocks is to do so via exchange-traded funds (ETFs). An ETF is a fund -- which often tracks a particular index -- that trades like a stock.
Below are seven dividend-focused ETFs to consider, plus a simple S&P 500 index fund for comparison purposes -- and also because it's a darn fine ETF for anyone to consider.
ETF | Recent Yield | 5-Year Avg. Annual Return | 10-Year Avg. Annual Return |
---|---|---|---|
iShares Preferred & Income Securities ETF (PFF 0.09%) | 6% | 3.29% | 4.11% |
Schwab U.S. Dividend Equity ETF (SCHD) | 3.6% | 13.6% | 12.4% |
iShares US Real Estate ETF (IYR 0.74%) | 2.7% | 4.2% | 6.8% |
Vanguard High Dividend Yield ETF (VYM -0.03%) | 2.7% | 11.8% | 10.9% |
SPDR S&P Dividend ETF (SDY 0.36%) | 2.3% | 10% | 10.8% |
iShares Core Dividend Growth ETF (DGRO 0.14%) | 2.2% | 12.8% | 12.9% |
Vanguard Dividend Appreciation ETF (VIG 0.21%) | 1.7% | 13.3% | 12.7% |
Vanguard S&P 500 ETF (VOO 0.39%) | 1.2% | 16.4% | 14.1% |
Data source: Morningstar.com, as of Oct. 15, 2024.
You'll notice that some of the funds sport hefty dividend yields, while others feature some terrific long-term growth rates over the past five and 10 years. In investing, there's generally a trade-off between growth and income. Here's a little more about each of these index funds and the index that each tracks:
So consider any or all of these ETFs for your long-term portfolio, whether you're in or approaching retirement or have decades to go before retiring.
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