In the low interest rate climate of today, retirees are searching for income from their portfolios are turning to stock dividends. That can be dangerous, since dividends are not guaranteed payments, and dividends that are too high usually end up as yield traps where the income then evaporates.
Because of the risks connected to dividends for income, many retirees seek to find dividend-focused ETFs instead of solo stocks to spread those risks out. This move can more easily give a better portfolio, thus removing the impact to any single company’s dividend being cut. With this in mind, these three dividend ETFs might be a retiree’s best friend:
1. Vanguard Dividend Appreciation Index ETF
Vanguard’s Dividend Appreciation Index ETF tries to follow the NASDAQ US Select Dividend Achievers Index. Which is an index comprised of companies with a decade of not just paying, but raising their dividends. Having dividend growth over some time is a crucial measure, as it gives one of the few opportunities for your income to grow to fight inflation.
The ETF’s yield of close to 1.6% might be lower than most dividend lovers would like, but it still beats the overall S&P 500’s 1.3%.
2. iShares Core Dividend Growth ETF
The iShares Core Dividend Growth ETF is linked to the Morningstar US Dividend Growth Index. What’s special about this one is that it not only searches for at least a five-year proven record of increasing dividends, but also a dividend ratio at or under 75% of earnings.
A 75% payout is around the upper limit of the Goldilocks zone for dividends. Except for specialized companies like REITs, when a business gives around this level, it can sap the firm’s flexibility for when things go bad.
Because of this, the iShares ETF adds some robustness that comes from looking for those better-supported dividends among firms with good growth histories. Also, with a yield just over 2%, this ETF manages to beat even 30-year Treasuries in payout amounts.
3. Vanguard Real Estate Index ETF
Real estate has a great history of creating cash for its owners. That history is so foundational that there is actually a special corporation known as an REIT (or real estate investment trust). Companies of this type can deduct their dividends from their taxes if they give at least 90% of their income to their shareholders.
So between this reputation and the unique corporate structure, is there any wonder why the Vanguard Real Estate Index ETF is on this list? With a yield of nearly 2.3% and an asset base with a strong incentive to give cash to its owners, there is a great reason to include it in your portfolio to get a reasonable income stream.
Author: Scott Dowdy