A high-dividend ETF is an exchange-traded fundthat lets investors own a handful of dividend stocks with good yields.
“Good” yields are about 2.5% or higher. Right now the average dividend yield for stocks in the S&P 500 is 1.97% – up from 1.95% at the same time a year ago.
There are more dividend stocks to choose from than ever before. Currently, 421 companies in the S&P 500 Index pay a dividend. Some 185 of them have hiked payouts every year for the last five.
S&P Dow Jones Indices estimates S&P 500 companies returned a record $242 billion to shareholders in the first three months of 2015 via buybacks and dividends (final Q1 numbers come out in a few weeks).
The previous high dividend payout of $233 billion was logged eight years ago in Q2 2007.
Dividend payouts are trending higher because investors have become accustomed to them and will keep demanding them, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
A high-dividend ETF lets investors take advantage of multiple companies’ increased payouts with one investment. The yield on a high-dividend ETF is typically greater than the S&P 500’s overall less than 2% yield and the Dow’s 2.3% yield.
Plus, a high-dividend ETF offers a tax advantage. Because they track an index, most have very little buying/selling activity. Thus they amass far fewer capital gains than an actively managed mutual fund. Additional ETF and mutual fund comparisons can be found here.
Here are a few high-dividend ETFs to consider.