These 4 dividend ETFs are a retiree’s best friend


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Dividends that are too high often end up as yield traps where income eventually evaporates.

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In today’s low interest rate environment, retirees looking for income from their investments are increasingly turning to stock dividends. This can be dangerous, as dividends are never guaranteed payments, and dividends that are too high often end up as yield traps where income eventually evaporates.

Because of the additional risks associated with looking for dividends for income, many retirees look to dividend-focused ETFs rather than individual stocks to spread out those risks. Such a move could more easily provide a better diversified portfolio, thus reducing the investor’s impact of a single company’s dividend cut. With that advantage in mind, these four dividend ETFs can be a retiree’s best friend in today’s environment in that quest to generate some sort of income.


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1. A fairly comprehensive index of companies that have increased their dividends

Vanguard Dividend Appreciation Index ETF The NASDAQ tries to track the US Select Dividend Achievers Index. The index is made up of companies with at least a 10-year history of not only paying, but also increasing their dividends. Dividend growth is an important measure over time, as it provides one of the few opportunities for an investor’s earnings to grow to combat inflation.

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The index (and thus, the fund) only looks at companies with at least 10-year dividend growth rates. With that restriction, it means that at this point, the fund should only hold companies that have managed to survive their streaks during the COVID-19 pandemic. This bodes well for their ability to continue to generate cash even during uncertain economic times.

Although the ETF’s yield of about 1.6% may be lower than that of most dividend aficionados, it still beats the overall S&P 500’s yield of about 1.3%. When combined with the fact that the Vanguard Dividend Appreciation Index ETF specifically seeks out companies with a history of rising dividends, it offers investors the possibility to see a higher income stream that can grow rapidly.

anchor the protection The last Change Change %
wig Vanguard Specialized Fund Dividend Appreciation ETF 158.06 +1.58 +1.01%

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2. With fair payout ratio to dividend producers

The iShares Core Dividend Growth ETF follows the Morningstar US Dividend Growth Index. The highlight of this index is that it not only looks at at least a five-year history of increasing dividends, but also looks at a dividend payout ratio of 75% or less to earnings.

A 75% payout ratio is about the upper limit of the Goldilocks area of ​​dividend payouts. Except in specific businesses like real estate investment trusts, when a business’s payout exceeds that level, it can erode a company’s resilience when things go wrong.

As a result, the iShares Core Dividend Growth ETF potentially adds a layer of strength that comes from seeking only better-backed dividends among companies with a good growth history. Moreover, with a yield above 2%, this ETF is also the top 30-year Treasury in terms of current payout amount.

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3. Industry with a long reputation for generating cash

Real estate has a solid history of generating cash for its owners. That history is so deep that there is actually a special corporation type known as a real estate investment trust. That type of companies can deduct their dividend payments from their corporate income taxes if they pay at least 90% of their income as dividends to their shareholders.

So between industry reputation and corporate structure gains, is anyone wondering why the Vanguard Real Estate Index ETF is there? Does this make the list? With a yield of around 2.3% and an asset base that has a strong incentive to pay cash to their owners, there’s good structural reason to believe it can continue to provide a reasonable income stream.

In addition, since real estate is often considered a reasonable inflation hedge, there is an opportunity to increase dividends over time, helping to maintain the purchasing power of those cash flows.

anchor the protection The last Change Change %
VNQ Vanguard Index Fund Vanguard REIT ETF 106.62 -0.21 -0.20%

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4. If income matters more than growth

In many cases, higher returns are a sign of higher risk to the cash flow of the underlying business. In other cases, a high yield represents a cash-cow type industry that generates a ton of cash but whose growth prospects may be slightly limited. For the Global X MLP & Energy Infrastructure ETF, the investment largely falls into that latter camp.

The Global X MLP & Energy Infrastructure ETF invests primarily in midstream energy companies such as Pipeline. Even with the development of renewable energy, the Energy Information Agency seeks to keep petroleum and natural gas strong for decades to come. Strong demand — but not much in the way of growth — leads to an asset class that has the potential to generate cash for its shareholders.

With a yield of approximately 6.1%, the Global X MLP & Energy Infrastructure ETF offers a higher current income stream than any other ETF on this list. With limited long-term prospects, there’s good reason to believe that investors won’t see much in the way of earnings growth. When it comes to investing, there’s generally no such thing as a free lunch, and the resulting high current income seems like a fair trade-off for those less obvious long-term growth prospects.

anchor the protection The last Change Change %
mlpx Global X FDS MLP and Energy Infrastructure 35.47 +0.89 +2.57%

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As a retiree looking for income, these four dividend-focused ETFs may just be your financial best friend. Just remember that dividends are never guaranteed payouts. As a result, make sure you view your dividend income as helping to recoup spent cash from high-fixed sources, not as a direct source of that spending cash.

Used properly, dividends can play an important role in your retirement fund plans. So start now, and give yourself a good shot at financing the retirement you hope to live out.

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