It's exciting and fruitful to earn money from your investments. After all, you work hard for your money. It's nice to have your money working for you. One approach is to generate passive income via dividends.
Investing in exchange-traded funds (ETFs) provides one way to accomplish this goal. And ETFs provide diversification benefits compared to individual stocks. Here are three ETFs that offer different dividend yields and income streams depending on your investment preference..
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1. ProShares S&P 500 Dividend Aristocrats ETF
ProShares S&P 500 Dividend Aristocrats® ETF (NYSEMKT: NOBL) seeks to track the S&P 500 Dividend Aristocrats Index. (The term Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC.) In fact, it's the only ETF that concentrates on that index, which encompasses 66 S&P 500 stocks that have raised dividends for at least 25 straight years.
Unlike the S&P 500, which weighs each stock based on its market capitalization, the Dividend Aristocrats ETF weighs each one roughly equal. It includes well-known companies such as manufacturer Stanley Black & Decker, fast food chain McDonald's, and human resource management company Automatic Data Processing.
The companies in the ETF tend to have steady financial results, as you might expect from businesses that have the cash to consistently increase dividends throughout the years. Consumer staples and industrial companies comprise the largest sector weightings, about 24% and 23%, respectively. That's followed by the materials sector's 12.3% weight. The ETF caps a sector's weight at 30%.
The ETF, which has a 0.35% expense ratio, offers a 2.5% dividend yield. That's about 1.1 percentage points higher than the overall S&P 500's 1.4%.
2. SPDR Portfolio S&P 500 High Dividend ETF
The SPDR Portfolio S&P 500 High Dividend ETF(NYSEMKT: SPYD) tracks its namesake's index. The equally weighted index has 80 of the highest dividend-yielding S&P 500 companies.
The S&P 500 High Dividend ETF has nearly one-quarter, 24.2%, of its investments in the real estate sector. That's followed by utilities' 17.9%, financials' 16.2%, and consumer staples' 11.9%. That sums to about 70%. By contrast, the SPDR S&P 500 ETF Trust(NYSEMKT: SPY) weights the four sectors at 24%. Information technology has the largest weighting, at 30.6%.
Some recognizable companies include the large utility Edison International, drug maker Bristol Myers Squibb, and consumer healthcare company Kenvue, formerly part of Johnson & Johnson.
The S&P 500 High Dividend ETF, investing passively in the index, has an ultra-low 0.07% expense ratio. The low fees mean that investors keep a greater portion of the return.
The ETF offers a 4.5% dividend yield.
3. Invesco KBW Premium Yield Equity REIT
The Invesco KBW Premium Yield Equity ETF (NASDAQ: KBWY) seeks to invest at least 90% of its assets in small- and mid-cap real estate investment trusts (REITs). Over 92% are placed in small-cap securities.
Since the ETF invests in smaller REITs, these tend to have more volatile results. However, investors get compensated for this in the form of higher yields. The Invesco KBW Premium Yield Equity ETF offers an 8.1% yield. It has a 0.35% expense ratio.
Its largest holding, Uniti Group(NASDAQ: UNIT), accounts for 9.5% of the ETF. The REIT acquires and constructs communications infrastructure. That's followed by Global Net Lease's 6.4% and Service Properties Trust's 5.2%. The former invests in net leased properties (tenant responsible for taxes, insurance, and maintenance) across the U.S. and Europe, while the latter owns hotel and service-focused retail properties.
REITs serve as a good investment vehicle for income-oriented investors since they must pay out at least 90% of their income as dividends.
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Kenvue, and ProShares Trust - ProShares S&P 500 Dividend Aristocrats ETF. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
