Stocks and exchange-traded funds (ETFs) that generate good dividends have been an investor’s best friend during this market correction. High-yield dividend investments have generally outperformed the overall market with a higher total return. For retirees, they are equally important for the income they can generate on a monthly or quarterly basis.
While there are many great dividend ETFs to choose from, the High Dividend Low Volatility Invesco S&P 500 ETF (NYSEMKT: SPHD) and the First Trust Morningstar Dividend Leaders Index Fund (NYSEMKT: FDL) are two of the best for retirees due to their high returns and solid returns. Here’s a look at each of them.
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1. High Dividend Low Volatility Invesco S&P 500 ETF
The Invesco S&P 500 High Dividend Low Volatility ETF tracks the S&P 500 Low Volatility High Dividend Index, which is composed of the 50 stocks in the S&P 500 with the highest dividend yields and the lowest volatility. These are stable, blue chip companies that are industry leaders and generate consistent revenues. Consider the ETF’s three main positions: Williams Cos.† Children Morganand Chevron† About 22% of the portfolio is in utilities, 19% in consumer staples and 12% in healthcare.
One measure to look at with a dividend ETF is the payout percentage, which is the cash flow paid out to investors. It is calculated by calculating the most recent annual distribution and dividing by the net asset value or share price of the ETF. There is also a 12 month payout percentage, which is the total of the last 12 months of payouts divided by the stock price. This ETF has one of the highest payout rates, with a current interest rate of 3.6% and a 12-month rate of 3.4% as of May 25. The 12-month yield is probably the better indicator, as ETF dividends tend to fluctuate, and the broader snapshot provides a more accurate picture.
This ETF pays a monthly dividend, with the most recent payout in May of $0.14 per share. That works out to $1.68 per share per year if it maintains that payout. So if you owned 50 shares at the current $47 stock price, you would have $84 in dividend payments at the end of the year.
The other advantage of this ETF is its performance. The ETF is up 5% so far on May 26, while the S&P 500 is down about 15%. It has gained about 9% in the past year as of April 30, and while it doesn’t quite have a 10-year track record as it was launched on October 18, 2012, it has achieved an average annual return of 11% since its inception. . That’s a good solid return, with a great dividend, that can bring both income and balance to your portfolio.
2. First Trust Morningstar Dividend Leaders Index ETF
The First Trust Morningstar Dividend Leaders Index ETF tracks the Morningstar Dividend Leaders Index. The index uses a proprietary screening model that finds the 100 best-performing stocks that have followed a consistent, sustainable dividend policy. Stocks are weighted by the dollar value of dividend payments, but no individual security may make up more than 10% of the portfolio, and stocks weighing more than 5% together may not make up more than 50% of the portfolio.
Like the Invesco ETF, the holdings are primarily large-cap value stocks of stable companies, but with a significantly broader mix. The three largest companies are: AT&T† AbbVieand Chevron.
The ETF has a 12-month distribution rate of 3.6%, which is one of the highest for ETFs. Unlike the Invesco ETF, it pays a quarterly dividend, with the most recent in March of $0.28 per share, but the first quarter tends to be lower. Last year it paid out about $1.30 a share, meaning if you owned 60 shares at $39 a share, that would work out to $78 a year in earnings.
This First Trust ETF has also generated great returns relative to the market. It is up 9% so far on May 26, beating the S&P 500 by a distance. Over the past 12 months as of April 30, it is up 11% and over the past 10 years it has an average annual return of 11%.
Retirees looking for strong ETFs that generate stable income and have generated positive returns at a time when the market is in turmoil should consider these two options.
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