5 High-Yield Dividend ETFs to Buy to Generate Passive Income

Who wouldn’t want passive income? By definition, it is money that comes to you without you having to get it back. You don’t have to work, inherit money from a rich relative, or even rob a bank for that money.

There is many potential sources of passive incomeand not all of them will appeal to everyone. You can buy properties and rent them out, for example, but that requires occasional effort and some real estate savvy. Buying a fixed annuity can also allow you to collect monthly payments, but you’ll usually have to pay a significant amount up front for that annuity.

Five Compelling High Dividend ETFs

So think about high-dividend exchange-traded funds (ETFs). They work a lot like mutual funds, but they trade like stocks, and some have solid dividend yields while also offering growth potential. Here are five to dig into—plus a bonus.

Source: Morningstar.com, as of June 24, 2024.

*Vanguard does not provide SEC returns. This is the recent “unadjusted effective return” of the ETF.

If the above chart doesn’t sound interesting enough, this might help: Imagine you own—or retire with—a $500,000 portfolio that has an overall average dividend yield of 3.5%. That’s enough to generate $17,500 in passive income each year. If you’re currently earning, say, $80,000 per year, that’s the equivalent of earning an additional 22% bonus per year.

Now that you’re more interested in these ETFs, let’s take a brief look at each one.

iShares Preferred and Income ETFs

This ETF specializes in preferred stocks, not the common stocks most of us invest in most of the time. Don’t expect preferred stocks to rise in value much, and don’t expect their dividends to rise much either. They often pay fixed dividends, but they also often offer outsized yields.

Schwab US Dividend Stock ETF

This index fund tracks the Dow Jones US Dividend 100 Index, which consists of high-yielding U.S. stocks that have consistently paid dividends. His largest recent holdings were Texas Instruments, AmgenAnd Lockheed Martin.

The story continues

Vanguard Real Estate Exchange Traded Fund

Real estate investment trusts (REITs) own a lot of real estate and generate income from renting it out. Since owning real estate can be tricky and expensive, if you want to profit from real estate, you might want to consider investing in an ETF like this one instead. Owning a REIT can be thought of as “the truly lazy way to own.” Top holdings of this ETF recently included Prologue, American tourAnd Equinix. Respectively, they specialize in, among other things, warehouses, telecommunications towers and digital infrastructures.

Vanguard High Dividend Yield ETF

This ETF aims to replicate the returns of the FTSE High Dividend Yield Index, minus its low fees. It focuses on U.S. stocks in the FTSE Global Equity index series that have high yields (excluding REITs), and its top recent holdings include Broadcom, JPMorgan ChaseAnd ExxonMobil.

iShares Core Dividend Growth ETF

This ETF holds stakes in companies that not only pay large dividends, but also have a track record of increasing their payouts. Growing dividends can be particularly powerful portfolio boosters, and this ETF’s top holdings have recently been Apple, Microsoftand ExxonMobil.

Vanguard S&P 500 ETF

Finally, here’s a bonus dividend-paying ETF. This S&P 500 index fund’s yield isn’t huge, but it makes up for it with a solid growth history. The returns in the table above show how it has generally stacked up against other recommended stocks, but don’t expect returns that high in the future. The stock market’s long-term average annual gain is closer to 10% than 15%. Investing in the S&P 500 can give you a measure of passive income from dividends as well as stock price appreciation.

There are many other solid ETFs to study, many of which offer significant dividend yields. There are also many ETFs and stocks with higher dividend yields, although they may also offer lower historical returns and/or more risk. So, explore some or all of these or other ETFs, and you should be able to set yourself up to collect lots of passive income.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Selena Maranjian has positions in American Tower, Amgen, Apple and Microsoft. The Motley Fool has positions in and recommends American Tower, Apple, Equinix, JPMorgan Chase, Microsoft, Prologis, Texas Instruments, Vanguard Real Estate ETF, Vanguard S&P 500 ETF and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Amgen, Broadcom and Lockheed Martin. The Motley Fool has a disclosure policy.

5 High-Yield Dividend ETFs to Buy to Generate Passive Income was originally published by The Motley Fool