Investing in dividend stocks is one of the easiest ways to generate passive income. The only work you need to do is build a diversified portfolio of high-quality, high-yielding dividend-paying stocks. You can then sit back and watch the dividend income flow into your account.
An even simpler route to passive income is investing in a exchange-traded fund (ETF) focused on higher dividend stocks. Schwab US Dividend Stock ETF (NYSEMKT:SCHD) And Vanguard Real Estate ETF (NYSEMKT:VNQ) are great options. These ETFs each hold more than 100 higher-yielding dividend-paying stocks, providing instant diversification. Here’s a closer look at these two Dividend ETF.
An instant income portfolio
The Schwab US Dividend Equity ETF is a passively managed fund that tracks the total return of the Dow Jones US Dividend 100 Index. This index features 100 of the nation’s top dividend stocks and focuses on higher yielding companies with strong track record of consistent dividend payments. It selects companies based on their financial strength compared to their peers.
The ETF holds around a hundred stocks diversified across several stock market sectors:
Financial datas: 17.4% of the portfolio
Health care: 15.7%
Consumer Staples: 13.9%
Industrial: 13.5%
Energy: 12.8%
Discretionary consumption: 10.1%
Computer science: 8.7%
Communications Services: 4.7%
Materials: 3.1%
The fund’s top 10 holdings represent about 40% of its assets. She owns several high-dividend stocks, including Verizon (4% of the portfolio) and Pfizer (3.9%), which bring in almost 7% and 6% respectively. Most of its top holdings have excellent track records of increasing their dividends (Verizon has increased its payouts for 17 consecutive years, while Pfizer’s streak is 15 consecutive years).
The ETF’s current distribution yield is over 3.3%. This is more than double the dividend yield of the S&P 500 (around 1.3%). Fund fees a very weak ETF expense ratio of 0.06%. These low fees allow fund investors to keep more of the dividend income generated by It is assets. For example, a $1,000 investment in the fund would produce over $33 in dividend income each year while incurring only $0.60 in management fees.
THE really lazy way of owning
Investing in real estate can be a great way to generate passive income. However, managing rental properties takes work (and a lot of money). A less expensive and more passive approach is to invest In real estate investment trusts (REITs). REITs own income-producing properties and generally pay out the majority of their income as dividends.
An even more passive strategy is to invest in a REIT-focused ETF, such as the Vanguard Real Estate ETF, which invests exclusively in REITs. He Currently holds more than 150, providing investors with diversified exposure to the entire sector. REITs tend to pay growing, high-yielding dividends. Here’s a look at some of his the biggest assets:
Prologue (6.5% of the fund’s assets): The leading industrial property company yields almost 4%. Over the past five years, its dividend has grown at a compound annual rate of 13%, more than double the REIT industry average of 5%.
American tour (5.5%): This data infrastructure REIT yields around 3.5%. It increased its payments by almost 19% per year during the last decade.
Real estate income (3.1%): The dividend yield of the diversified REIT is above 6%. Its dividend has increased for more than 25 consecutive years.
The yield of the Vanguard Real Estate ETF is around 4%. The fund provides broad access to high-yielding REITs for reasonable fees (0.13% expense ratio). Since most REITs tend to increase their dividends over time, this ETF should provide investors with a steadily increasing stream of passive income.
Simple Ways to Start Generating Passive Income
Investing in high-yielding dividend stocks and REITs is a great way to earn dividend income. ETFs like Schwab US Dividend Equity ETF and Vanguard Real Estate ETF make it even easier by giving investors instant access to these income producers. For this reason, these are great ETFs to buy for those who want to sit back and watch income steadily flow into their accounts.
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Matt DiLallo has positions in American Tower, Prologis, Realty Income and Verizon Communications and has the following options: long January 2026 $170 calls on American Tower and short January 2026 $175 calls on American Tower. The Motley Fool holds positions in and recommends American Tower, Pfizer, Prologis, Realty Income, and Vanguard Real Estate ETFs. The Motley Fool recommends Verizon Communications and recommends the following options: long January 2026 $180 calls on American Tower, long January 2026 $90 calls on Prologis, and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.
2 High Yield Dividend ETFs to Buy to Generate Passive Income was originally published by The Motley Fool
