Selecting and monitoring a portfolio of stocks is a lot of work. Exchange-traded funds (ETFs) are a way to buy stocks with less effort. And, if you are a dividend lover, Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD), SPDR Portfolio S&P 500 High Yield ETF (NYSEMKT: SPYD), and Amplify CWP Enhanced Dividend Income ETF (NYSEMKT: DIVO) are three great high-yield options for you to choose from. Here’s what you need to know about each one.
Schwab U.S. Dividend Equity ETF uses a complex screen to select stocks. It starts by limiting its candidate pool to only those companies that have made at least 10 consecutive annual dividend increases. That’s a screen that many dividend investors use, too. (Real estate investment trusts are excluded from consideration.) After that, it creates a composite score for the remaining stocks under consideration.
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The final score is a composite of cash flow-to-total debt, return on equity, dividend yield, and a company’s five-year dividend growth rate. These are all factors that dividend investors consider, with the goal of highlighting financially strong, well-run companies that have attractive yields and growing dividends. The 100 stocks with the highest composite score are included in the portfolio, using a market-cap weighting system.
The dividend yield is around 3.3% today, three times higher than the 1.1% yield of the S&P 500 index (SNPINDEX: ^GSPC). And the expense ratio is a tiny 0.06%. The best part is that Schwab U.S. Dividend Equity ETF’s complex approach has resulted in a generally rising price and dividend over time, which is exactly what most dividend investors want to achieve, too. You can buy around 16 shares with a $500 investment.
SPDR Portfolio S&P 500 High Yield ETF takes a shortcut by considering only S&P 500 index stocks. Companies in the index are selected by a committee and are generally large and economically important businesses. The ETF then sorts the list by dividend yield and selects the 80 stocks with the highest yields, weighting them each equally. Simple and easy to understand.
Using equal weighting helps to limit risk, since each stock has the same impact on performance. That’s notable because selecting the highest-yielding stocks from the S&P 500 index will tend to lead to concentrations in utilities, financials, real estate, and in companies that are currently struggling. That said, the nearly 4.1% yield will hit a sweet spot for many dividend investors, and the 0.07% expense ratio is very modest. A $500 investment will let you buy around 10 shares.