Two Dividend-Focused ETFs Worth Considering for Passive Income Generation
If you're in the market for passive income opportunities, consider investing in high-yield dividend exchange-traded funds (ETFs). Instead of researching and managing a portfolio of individual dividend stocks, you can buy units of a high-dividend ETF. Let me introduce you to three fantastic options that outperform the S&P 500's yield:
1. Schwab U.S. Dividend Equity ETF (SCHD)
With a yield of 3.6%, the Schwab U.S. Dividend Equity ETF is one of the best high-yield dividend ETFs out there. It tracks the Dow Jones U.S. Dividend 100 index, focusing on 100 consistent dividend-paying stocks with a financial backbone.
The top 10 holdings include Dividend Kings like Coca-Cola and Abbvie, as well as top dividend stocks like Chevron. Companies such as Coca-Cola, with a 2.8% yield and a 103-year dividend streak, and Abbvie, yielding 3.3% and boasting a 52-year dividend growth streak, offer impressive income potential.
Chevron, an oil and gas giant with a 4.4% yield, has raised its dividends for 37 consecutive years, even enduring oil price volatility. With an acquisition of Hess in the pipeline, the company's expected to grow its average annual free-cash-flow (FCF) by more than 10%.
This combination of high-dividend growth stocks has delivered spectacular returns to SCHD shareholders, making it a solid ETF choice. It's also one of the most well-diversified ETFs, boasting strong exposures to healthcare, financials, consumer staples, energy, and industrials.
2. JPMorgan Equity Premium Income ETF (JEPI)
JEPI's 7.3% yield might lead you to believe that the ETF invests in only high-dividend stocks. This assumption would be wrong, as JEPI takes a unique approach. It allocates 80% to U.S. large-cap stocks from the S&P 500 index and 20% to equity-linked notes (ELNs) that sell call options with exposure to the S&P 500 index.
The 80% equity allocation ensures a consistent stream of dividends, while the 20% ELNs reduce volatility and provide a source for monthly dividends. JEPI's diverse portfolio, which includes Amazon, Meta Platforms, and Visa, enables it to deliver a steady flow of income and a high yield.
Wrapping Up
Investing in high-yield dividend ETFs such as SCHD and JEPI can offer attractive passive income opportunities, outperforming the S&P 500's yield. Be sure to research these ETFs thoroughly to understand their unique strategies and risk profiles before making investment decisions.
- If you have a budget for finance and are interested in passive income opportunities, the Schwab U.S. Dividend Equity ETF (SCHD) with a yield of 3.6% is a great option to consider.
- The average annual free-cash-flow (FCF) of Chevron, one of the top holdings in SCHD, is expected to increase by more than 10% due to an acquisition, which could potentially boost the ETF's performance in 2029.
- To diversify your portfolio and maximize potential returns, you might want to consider investing in a high-yield dividend ETF like JPMorgan Equity Premium Income ETF (JEPI), which has a unique approach that allocates 80% to U.S. large-cap stocks and 20% to equity-linked notes.
- By investing in high-yield dividend ETFs like SCHD and JEPI, you can potentially outperform the S&P 500's yield and generate a steady stream of passive income, but it's essential to conduct thorough research and consider their unique strategies and risk profiles before making any investment decisions.
