If you’ve got $500 and are looking to invest in high-yield exchange-traded funds (ETFs), there are several choices out there. However, three particular options rise above the rest as solid buy-and-hold candidates.
The Vanguard High Dividend Yield ETF (NYSEMKT:VYM), Invesco High Yield Stock Dividend Achievement ETF (NASDAQ:PEY), and Schwab US Dividend Stock ETF (NYSEMKT: SCHD) each take unique approaches that may resonate with different investors. Deciding which one is right for you will depend on your preferences.
First up is the Vanguard High Dividend Yield ETF, which is notable for its diversification. It boasts about 566 different dividend stocks, closely tracking the S&P 500 index. If broad exposure to high dividend stocks is what you’re after, this ETF could be the best fit for your needs.
The process for acquiring the Vanguard High Dividend Yield ETF is quite simple. It ranks all high-dividend stocks in the U.S. from highest to lowest yield and includes those in the upper half. Sure, there might be shaky companies included, but the diversification helps mitigate that risk, and it features a low expense ratio of just 0.06%.
Investing $500 allows you to purchase approximately three shares of this ETF, with a dividend yield sitting at 2.5%, which is more than double what the S&P 500 currently offers.
On the other hand, the Invesco High Yield Equity Dividend Achievers ETF adopts a more concentrated strategy. It exclusively considers stocks with at least a decade of dividend increases and selects the 50 highest-yielding from that pool, based on yield. The ETF’s focus on yield, rather than market cap, means that the top dividend payers significantly influence its performance.
This approach yields a higher dividend of 4.6%. However, the drawback is that investing in these high-yielding stocks tends to lead to a concentration in utilities, financials, and sometimes more obscure companies. With $500, you can acquire about 24 shares, but keep in mind the expense ratio is higher at 0.54%. This raises a flag for long-term investors; it might be wise to pair this ETF with another to balance things out.
Lastly, we have the Schwab U.S. Dividend Stock ETF, which employs a bit more complexity. It also starts with stocks that have increased dividends over a decade but goes further. This ETF generates a composite score for potential candidates, factoring in metrics such as cash flow relative to total debt, return on equity, yield, and five-year dividend growth. The goal is to capture blue-chip companies that not only grow but provide robust yields.
Although there’s some detailed screening, it maintains an appealing expense ratio of 0.06% and offers a 3.8% yield. For a $500 investment, you could secure around 18 shares, putting you in a diversified position.
Ultimately, selecting just one of these ETFs may not be the best strategy. Perhaps consider combining two: one for a solid foundation and the other for extra yield. If you have to pick just one, the Schwab U.S. Dividend Stock ETF might be a balanced choice.
It’s also worth mentioning—before diving into the Vanguard High Dividend Yield ETF—do some additional research. For instance, some experts have their eyes on different stocks they believe could deliver greater returns in the upcoming years.
