With these funds, you don’t have to track individual dividend stocks.
Intel and Walgreens Boots Alliance Here are some of the notable dividend stocks that have cut or stopped paying their dividends this year: The danger for investors is assuming that dividends are always safe, only to one day be in for a horrible surprise.
Unfortunately, there’s no way to know for sure if a dividend will be cut or suspended, but one way dividend investors can protect themselves is by using exchange-traded funds (ETFs), which can offer better protection because they’re not dependent on just one investment.
Here are three ETFs that offer solid diversification and can be a source of ongoing income for years, or even decades. ProShares S&P 500 Dividend Aristocrats ETF (NOBL 0.89%), iShares Select Dividend ETF (D.V.Y. 0.73%)and Vanguard Dividend Growth Index Fund ETF Shares (VIG 1.32%).
ProShares S&P 500 Dividend Aristocrats® ETFs
The ProShares fund has a yield of about 2.1%. S&P 500 The average is 1.3%, but what makes this fund attractive is that it focuses on dividend growth stocks that have increased their dividends for at least 25 consecutive years.
This is a market segment to watch. For a company to regularly increase its dividend, it needs to have strong underlying financials and at least some favorable growth prospects. Walgreens was also a dividend increase stock, so this isn’t a one-size-fits-all strategy, but the fund’s diversification makes the difference here. No stock makes up even 2% of the fund’s overall weighting, so your investment won’t be eroded if the dividend is suddenly cut or suspended.
This ETF holds stocks in 66 companies, including some of the biggest names in the industry, such as: McDonald’s, Colgate-Palmoliveand Johnson & JohnsonThe sectors within the fund are also nicely mixed, with a majority focus on consumer staples (24%) and industrials (23%).
The ProShares S&P 500 Dividend Aristocrats ETF has an expense ratio of 0.35%, which isn’t too high. (The term Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC.) Lower-cost funds do exist, however. But with quarterly rebalancing and an emphasis on top dividend stocks, it may be worth paying a small premium to gain exposure to some of the best dividend stocks on the market.
iShares Select Dividend ETF
The iShares Select Dividend ETF offers investors a higher yield of 3.5% as it focuses on dividend stocks rather than dividend growth stocks. Its criteria for dividend stocks is less strict, focusing primarily on US stocks that have been paying dividends for five years.
The fund holds about 100 stocks, with a high exposure to utilities and financial stocks, which together make up about 55% of the fund. The remaining 11% is consumer staples.
The top three stocks in this fund are Artoria, AT&Tand Philip MorrisIt might be unsettling to see several tobacco stocks at the top of the list, given their questionable future growth prospects, but these three stocks combined account for just over 7% of the fund.
The fund is somewhat risky as it focuses primarily on high-yield stocks, but its broad diversification makes it a good option for dividend investors looking for high dividends. The iShares fund has an expense ratio of 0.38%, which is on par with the ProShares ETF.
Vanguard Dividend Growth Index Fund ETF Shares
Rounding out the list is the Vanguard Dividend Appreciation Index Fund. This fund has the lowest yield on the list at 1.8%, but also the lowest expense ratio at 0.06%.
What makes this fund unique is that it holds over 300 stocks, making it by far the largest and most diversified fund listed here, and it focuses on stocks that consistently grow dividends. S&P US Dividend Growth IndexThis includes stocks that have had increasing dividends for at least 10 years.
The ETF is diversified but slightly biased towards tech stocks, which make up a quarter of its holdings, financial stocks at 20% and healthcare stocks at about 16% of the fund. apple, Microsoft and Broadcom This accounts for just under 13% of the fund’s assets.
Investors who prefer big name stocks over high yields might want a Vanguard fund, which focuses on large-cap stocks and could offer the best option if your goal is to keep overall risk as low as possible.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Microsoft, ProShares Trust-ProShares S&P 500 Dividend Aristocrats ETF, and Vanguard Specialized Funds-Vanguard Dividend Appreciation ETF. The Motley Fool recommends Broadcom, Intel, Johnson & Johnson, and Philip Morris International and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
