There is no "right" investment strategy. Find a path that makes sense to you so you can stick to it through stock market ups and downs. For instance, dividend investing has several methods.
Dividend-focused retirees can consider the SPDR Portfolio S&P 500 High Dividend ETF (NYSEMKT: SPYD), Vanguard Dividend Appreciation ETF (NYSEMKT: VIG), and Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) before choosing. How do dividend ETFs differ and what does that mean for you?
1. SPDR S&P 500 High Dividend ETF The S&P 500 High Dividend ETF costs 0.07%. Extremely low, but not the lowest on this list. The highest dividend yield on this list is 4.4%. The ETF follows the S&P 500 High Dividend Index, so that makes sense.
S&P 500 High Dividend ETF owns 80 high-yielding S&P 500 companies. Unlike the S&P 500, the S&P 500 High Dividend ETF is equally weighted, so every stock gets the same money. In function, the smallest organization can affect performance as much as the largest.
After the high yield, this exchange-traded fund's S&P 500 holdings are its strongest draw. Stocks in the S&P 500 are chosen to represent the economy. By removing the highest-yielding stocks, S&P 500 High Dividend ETF will favor real estate, utilities, and financials, but these sectors will invest in large, well-known corporations.
2. Vanguard DAETF The Vanguard Dividend Appreciation ETF's 1.7% yield shows its unique focus. Dividend growth trumps yield. Its 0.06% expense ratio is tied for lowest on the list. Vanguard Dividend Appreciation monitors S&P U.S. Dividend Growers. This index includes equities of companies that have raised dividends for 10 years. Next, eliminate the top 25% for yield. REITs are excluded from the list.
The market cap-weighted list of qualifying enterprises remains. Large corporations will have the most impact on the ETF's performance. This investment is focused on dividend growth, which is ideal if that's your preferred strategy. Tech, finance, and healthcare have the most weight.
3. Schwab US Dividend Equity ETF The Schwab U.S. Dividend Equity ETF falls between the other two dividend ETFs. Example: 3.3% yield, 0.06% expenditure ratio. Schwab U.S. Dividend Equity ETF tracks Dow Jones U.S. Dividend 100.
First, the Schwab U.S. Dividend Equity ETF excludes REITs and small firms. All corporations must have 10 years of yearly dividend growth. Company quality is assessed by leverage, return on equity, and dividend growth rate. It assigns a composite score to each company and indexes the top 100 equities.
The index weighs market cap. Although still a mechanical index, this list is more handpicked than the above ETFs and seeks a blend of yield, dividend growth, and company quality. Industrials, finance, and healthcare dominate today.
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