Investing $500 in the Optimal Dividend Exchange-Traded Fund at Present
Needing consistent income dividends? You're far from alone. The allure of regular, reliable cash payments into your account, or even your hand, is undeniable.
While selecting dividend stocks individually can come with avoidable risk, you can lower this by including a basket of dividend-paying stocks, like through an exchange-traded fund (ETF).
ETFs to choose from. Which is the best for most income-minded investors? One arguably stands out among the rest -- just not the one you might think.
With a multitude of dividend ETFs to choose from, finding the ideal one for most income-focused investors can be tricky. The popular choice, often thought of first, is not necessarily the best option, however.
NOBL
Yield isn't everything
DGRO
The ProShares S&P 500 Dividend Aristocrats® ETF (NOBL 1.40%) is a go-to name for many investors looking to simplify their dividend income with an ETF. With a minimum of 25 consecutive years of annual increases, these Dividend Aristocrats stocks offer stability and consistent growth.
VIG
Although its trailing yield stands at 2%, this isn't the optimal choice for most investors.
dividend growth.
Neither is the iShares Core Dividend Growth ETF (DGRO 1.23%), which includes any stock with five years of uninterrupted annual dividend increases. This allows for a larger pool of potentially profitable picks due to its lower requirements, but limits its staying power.
capital appreciation alone, the Dividend Aristocrats index has collectively underperformed for the past several years. Adding the index's respective (and reinvested) dividends into the mix doesn't change this surprising weakness, either.
So, which ETF should take the top spot? The Vanguard Dividend Appreciation ETF (VIG 1.39%) is a solid all-around contender. While its modest yield of 1.65% may not be the most enticing, its balance between current dividend yield and potential for future growth makes it the best bet for income-focused investors in the long run.
Comparing and contrasting
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The underlying index for each ETF plays a critical role in their performance.
YCharts.
Vanguard Dividend Appreciation ETF (VIG)
reinvesting those dividends),
The Vanguard Dividend Appreciation ETF aims to target stocks that have increased their dividends for at least 10 consecutive years, providing a steady income source without risking significant dividend cuts. Its focus on quality and stability makes it an attractive option for long-term investors.
tax liability.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
The ProShares S&P 500 Dividend Aristocrats ETF is built from the 66 highest-quality stocks in the S&P 500 that have increased their dividends for at least 25 consecutive years. While this index boasts a unique track record, its yield can be lower compared to competitors, due to its emphasis on growth over yield.
iShares Core Dividend Growth ETF (DGRO)
The iShares Core Dividend Growth ETF targets stocks that have increased their dividends for at least five consecutive years. This means it includes brands with more recent growth, but less established staying power compared to the Dividend Aristocrats. While its index may offer a wider range of potential income opportunities, it may not provide consistent growth across the board.
Ultimately, your choice will depend on your income needs, investment horizon, and risk tolerance. Choose the ETF that best aligns with your financial goals.
- For income-focused investors seeking a diversified portfolio of dividend-paying stocks, investing in an exchange-traded fund (ETF) can reduce risk.
- Arguably, the Vanguard Dividend Appreciation ETF (VIG) is a solid choice for long-term investors, as it targets stocks with a minimum of 10 consecutive years of dividend increases.
- When comparing the performance of different dividend ETFs, it's essential to consider the underlying index each ETF is based on.
- The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) and the iShares Core Dividend Growth ETF (DGRO) are both appealing options, but they cater to investors with different risk tolerances and investment horizons.