There is no shortage of excellent, low-cost exchange-traded funds (ETFs) that specialize in dividend stocks. There are some that focus on stocks that pay above-average dividends, stocks whose dividends grow rapidly, and dividend-paying stocks that have certain characteristics in common. And there are plenty of examples that could make excellent additions to your portfolio.
Having said that, here are three ETFs, all from low-cost index fund pioneer Vanguard, that could form an excellent backbone to a dividend-investing portfolio to hold and to add to for many years to come.
There are some excellent index funds that focus on stocks with above-average dividend yields. But it’s important to know that if you’re a long-term investor, dividend growth can be just as important.
That’s why the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is one of my top dividend ETFs to buy and hold forever. The fund has a rock-bottom 0.05% expense ratio and tracks an index of large-cap stocks that have track records of raising their dividends every year. As of this writing, top holdings of the fund include Broadcom (NASDAQ: AVGO), Apple (NASDAQ: AAPL), and JPMorgan Chase (NYSE: JPM). These aren’t the highest-paying dividend stocks, but they offer an excellent combination of growing income and stock-appreciation potential.
Over the past 10 years, the dividend-appreciation ETF has produced an 11.6% annualized total return, so don’t cross it off your list because it has a dividend yield of only 1.7%. This can be an excellent dividend ETF for investors who have decades to let their money compound, and by nature, its income stream should get quite a bit larger over time.
One recent focus of mine has been to diversify my portfolio internationally. As part of my efforts to do this, I added shares of the Vanguard International High Dividend Yield ETF (NASDAQ: VYMI). https://investor.vanguard.com/investment-products/etfs/profile/vymi#portfolio-composition
As the name suggests, this ETF tracks an index of companies based outside of the United States that have above-average dividend yields. There are approximately 1,500 stocks in this weighted index fund, and although they are all international stocks, you might be surprised to learn that many of the top holdings are household names to many Americans. For example, Toyota (NYSE: TM), Nestle, and Novartis are among the five largest positions.
Not only does this ETF offer a stellar 4.5% yield but now could be a great time to buy at a discount. The average stock in the portfolio trades for less than 12 times earnings and for 1.4 times book value. For context, the typical stock in the Vanguard High Dividend Yield ETF (NYSEMKT: VYM) — the U.S. equivalent — trades for a price-to-earnings (P/E) ratio of nearly 20 and for about 2.8 times book.