For long-term investors looking for solid options, low-cost index funds that offer dividends can be quite appealing. Some, however, really shine when it comes to combining revenue potential, long-term growth, and a truly passive investment experience.
A lot of my preferred income ETFs come from Vanguard, and honestly, it’s easy to understand why. Vanguard’s ETFs generally feature some of the most competitive fees out there, plus there’s a wide selection of index funds, both in ETF and mutual fund formats.
With that said, here are three Vanguard ETFs that could help generate passive income over the long haul for your portfolio.
It may not be the top salary ETF, but…
When looking at the Vanguard Dividend Appreciation ETF (vig), which has a yield of 1.8%, it might not seem like an obvious choice. But wait, there are important points to consider.
Firstly, this index fund targets stocks likely to increase their dividends over time. So, if you’re aiming to develop a passive income stream and still have more than a decade before retirement, this ETF could indeed provide substantial income in the future.
Secondly, it’s worth mentioning that unlike typical revenue ETFs, Vanguard Dividend Appreciation’s portfolio leans more toward growth. The biggest holdings include well-known names like Broadcom(avgo), Microsoft(msft), and Apple(AAPL).
The numbers speak for themselves. Over the past ten years, this ETF has delivered an annual total return of 11.2%, and its low expense ratio of 0.05% means it retains most of its profits.
Global exposure with a bargain
Another ETF that I actively add to my portfolio is the Vanguard International High Dividend Yield ETF (VIMY).
This fund tracks an index of non-U.S. companies that offer above-average dividend yields. Presently, it holds 1,560 different stocks and boasts a dividend yield of 4.2%.
Investing in international equities not only diversifies your portfolio but can also help mitigate U.S.-specific risks—like trade disputes. Interestingly, international stocks are currently valued relatively low. For instance, the average stock in the Vanguard International High Dividend Yield Index ETF trades at just 11.6 times earnings, while its U.S. counterpart trades at a P/E of 18.2, like the Vanguard High Dividend Yield ETF(VYM).
It’s also good to note that while these are international stocks, they’re not filled with unfamiliar names. Top holdings include recognizable companies like Toyota(TM), Shell, and Unilever(UL).
A strong ETF for a declining market
There are ongoing debates about how swiftly the Federal Reserve will reduce interest rates, but most experts seem to agree that rates will trend downward in the coming years.
Real estate tends to feel the impact of fees the most. When expenses are low, real estate investment trusts can borrow more affordably, which usually drives up commercial property valuations.
The Vanguard Real Estate ETF(VNQ) has faced sluggish market performance lately, but that’s largely due to the interest rate environment rather than fundamental issues with the underlying properties. While there’s still some uncertainty about interest rates in the short run, now might be a prudent time for long-term investors to evaluate this ETF more closely.
A strong mix of income, growth potential, and peace of mind
I’m not just a fan of these three income ETFs. I also keep an eye on some that take a slightly more aggressive route, such as the JPMorgan Nasdaq Equity Premium Income ETF(JEPQ). But for those wanting a truly passive income stream that’s easy to set up and forget, these three standout income ETFs could be excellent additions to your investment strategy.
