These 9 dividend ETFs are a retiree’s best friend

Those of us approaching or entering retirement are probably thinking more than ever about income. Social Security is great, but as of June, the average monthly retirement benefit was just $1,918 — about $23,000 a year. Even if you save twice, it’s probably a lot less than you’d like as your total retirement income, so you should work on building up a great retirement nest egg and think about how you can set up multiple streams of income. income for the following years. .

An excellent source of retirement income is dividends.

Image source: Getty Images.

Why dividends?

Dividends are great for many reasons. For example:

• Healthy, growth stocks that pay dividends will tend to increase their payouts over time. So if someone pays you, say, $1.50 per share today, they might pay you $4.00 per share in 15 years.
• Healthy and growing dividend-paying companies are likely to have share prices that appreciate well over time, so shareholders are rewarded with share price growth, dividend income, and increasing dividends.
• Having a significant portion of your portfolio dedicated to dividend payers can generate more income than you might imagine. If, for example, you have $400,000 in such companies with an average total dividend yield of 3%, you’re looking at $12,000 in annual income — about $1,000 a month, on average.
• Not only can you enjoy significant dividend income, but you won’t have to sell any of your portfolio to receive it. Your portfolio will continue to receive cash infusions.
• Pensioners could use that money for living expenses. If the dividends are in a pre-retirement portfolio, those dividends can be reinvested in additional stocks, which will then start delivering their own dividend payments.

Are you starting to feel giddy with the power of dividends now? Great! Here’s one more tidbit to digest: Dividend-paying companies aren’t poor compromises you could invest in instead of growth stocks. In fact, they tend to work well!

See the table below, adapted from a Hartford Funds report:

Data source: Ned Davis Research and Hartford Funds.

Dividend-focused ETFs are excellent retirement investments

So, now that you’re excited about dividend-paying stocks, should you rush out to buy some? Well, sure. If you feel comfortable studying and selecting individual stocks, go ahead. But if you’re not, and even if you are TOconsider opting for ETFs (exchange-traded funds) — instead of or in addition to individual stocks.

Below are nine ETFs that offer income. The first eight focus on income, while the last one is a simple S&P 500 index fund. It’s there for comparison purposes — and also because it’s a damn good ETF for anyone to consider.

Source: Morningstar.com, as of July 31, 2024.

Funds are ranked by dividend yield, and you might want to jump into the fund with the highest yield, but hold on. You’ll see in the table that ETFs with higher yields tend to grow somewhat slower than those with somewhat lower yields. So make sure you consider this factor. You may want to spread your dollars across multiple ETFs.

Also note that the numbers above shouldn’t be the only ones you look at. With any interest fund, read more about it. For example, you might want to find out how much each fund charges annually (the “expense ratio”) and how many different securities it holds:

Here’s what your expense ratio tells you: If it’s, say, 0.03%, you’ll pay about $3 a year on a $10,000 investment. If it’s 0.46%, you’ll pay $46. In general, the lower the fee, the better, although of course some funds deserve the higher fees.

The number of holdings might matter to you if you want to spread your money around many of holdings or relatively few. Remember, though, that how a fund weights its holdings matters a lot. It is common for a fund to be weighted by market capitalization so that the largest companies in it are the most influential. This means, on the contrary, that smaller companies will not move the needle very much.

So give serious consideration to dividend-focused ETFs for your portfolio. You can opt for one or more of the above — but know that there are good ones out there.