Paralysis analysis. It's a real problem for retirees when choosing dividend stocks to buy. More than 5,000 stocks that trade on U.S. exchanges pay dividends.
There is another solution, though: Invest in exchange-traded funds (ETFs) that offer solid dividend yields. These three dividend ETFs are a retiree's best friend.
1. iShares Select Dividend ETF
BlackRock offers several great dividend ETFs. Its iShares Select Dividend ETF(NASDAQ: DVY) stands out as one of the best. This fund launched in November 2003 and now has net assets of nearly $19.8 billion.
The iShares Select Dividend ETF seeks to track the performance of the Dow Jones U.S. Select Dividend Index. This index provides exposure to U.S. companies with a solid history of paying dividends.
The ETF owns 98 stocks. Its top holdings include Altria Group, AT&T, Philip Morris International, Citizens Financial Group, and International Paper.
Income investors should like the iShares Select Dividend ETF's 30-day Securities and Exchange Commission (SEC) yield of 3.69%. Many will also find the fund's average annual total return of 8.1% since inception quite attractive.
Probably the biggest knock against this iShares fund is its cost. The ETF's annual expense ratio is 0.38%, which is higher than the other dividend ETFs on our list.
2. SPDR S&P Dividend ETF
Like BlackRock, State Street is a large investment firm that markets multiple ETFs that pay dividends. One of its premier dividend ETFs is the SPDR S&P Dividend ETF(NYSEMKT: SDY). This ETF first traded in November 2005 and has assets under management of more than $21.2 billion.
The fund seeks to track the performance of the S&P High Yield Dividend Aristocrats® index. (The term Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC.) This index includes companies that have increased their dividends for at least 20 consecutive years. It weights those stocks by dividend yield.
The SPDR S&P Dividend ETF currently owns 133 stocks. Its top holdings include Realty Income, KenVue, Xcel Energy, International Business Machines, and Edison International. Stocks in four sectors -- consumer staples, industrials, utilities, and financials -- make up nearly 65% of the fund's holdings.
This SPDR ETF's 30-day SEC yield is 2.29%, lower than the other two ETFs on our list. However, the big advantage it offers is the impressive track record of dividend increases of the stocks in its portfolio. The fund has delivered an average annual total return of 9.14% since its inception. The ETF's annual expense ratio of 0.35% is also slightly lower than the iShares Select Dividend ETF.
3. Vanguard High Dividend Yield ETF
Vanguard pioneered index mutual funds. The company also is a leader in the ETF market. It launched the Vanguard High Dividend Yield ETF(NYSEMKT: VYM) in November 2006. This fund is the largest on our list with total net assets of $70 billion.
The Vanguard High Dividend Yield ETF attempts to track the performance of the FTSE High Dividend Yield Index. This index focuses on the stocks of companies that offer above-average dividend yields. These stocks also offer growth opportunities with an average earnings-growth rate of 11.6% over the last five years.
The ETF owns 551 stocks that have a median-market cap of $131.4 billion. Its top holdings include Broadcom, JPMorgan Chase, ExxonMobil, Johnson & Johnson, and Procter & Gamble.
Although Vanguard doesn't reveal what this ETF's 30-day SEC yield is, the fund's current dividend yield is 2.8%. It has generated an average annual total return of 8.68% since inception.
The biggest plus for this ETF is its low cost. The Vanguard High Dividend Yield ETF's annual expense ratio is only 0.06%. Vanguard estimates that the average annual expense ratio of similar funds is 0.9%.
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Keith Speights has positions in Realty Income. The Motley Fool has positions in and recommends Kenvue, Realty Income, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends International Business Machines and Philip Morris International and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
