The stock market started the second quarter with the Dow Jones Industrial Average and S&P 500 just under all-time highs, but that doesn't mean that there aren't attractive opportunities. Specifically, while the record highs have been largely fueled by large-cap tech companies, dividend stocks haven't performed quite as well -- yet.
If you aren't sure what dividend investments are right for you, there are some excellent exchange-traded funds (ETFs) that will do the hard work for you, and for a bare minimum of investment expenses. Here are three in particular that could be great additions to your portfolio in 2024 and for years to come.
An excellent all-around high-dividend ETF
The Schwab U.S. Dividend Equity ETF(NYSEMKT: SCHD) tracks an index of 100 stocks that have high-quality and sustainable dividends. With $56 billion in total assets, it is one of the largest dividend-focused ETFs on the market, and it is also one of the cheapest, with a total expense ratio of just 0.06%.
With a current yield of 3.4%, it isn't exactly the highest-paying dividend ETF on the market, but it holds a ton of top-quality businesses that have excellent long-term total return potential. Top holdings include Texas Instruments (NASDAQ: TXN), Verizon (NYSE: VZ), Lockheed Martin(NYSE: LMT), and Chevron(NYSE: CVX), just to name the largest. But with an average market cap of $166 billion, this is a fund made of large, long-established businesses.
Great for fixed-income investors
The SPDR Portfolio High Yield Bond ETF(NYSEMKT: SPHY) could be a solid choice if you need to add to your fixed income allocation in your portfolio, but aren't exactly thrilled with things like Treasury bonds.
The ETF has more than $4.1 billion under management and charges a rock-bottom expense ratio of 0.05%. It tracks an index of high-yield bonds, which specifically refers to bonds with credit ratings that are below investment grade with at least one year to maturity and a fixed coupon rate. The portfolio includes bonds issued by DirecTV, American Airlines(NASDAQ: AAL), DaVita(NYSE: DVA), and Caesars Entertainment(NASDAQ: CZR), just to name a few.
Of course, because of the nature of this ETF, the individual bond holdings are significantly riskier than Treasuries and high-grade corporate bonds. But with more than 1,900 different bonds in its portfolio, the effect of any default is likely to be minimal. The ETF currently has an outstanding 7.8% yield, and for risk-tolerant investors, it could be a nice fixed-income portfolio component.
Real estate could be ready to outperform
Over the past couple of years, the real estate sector has been one of the worst-performing parts of the stock market. But there is reason to believe that will change, and the Vanguard Real Estate ETF(NYSEMKT: VNQ) could be a great way to invest.
Specifically, one of the biggest reasons real estate has performed poorly is the rapid rise in interest rates. Not only do rising rates tend to pressure income-focused investments like real estate investment trusts (REITs), but it makes the cost of capital higher for these businesses, which tend to rely on borrowed money and the ability to issue equity to fund much of their growth.
The Vanguard Real Estate ETF has a 4.1% yield at the current price and invests in a weighted index of top-quality REITs. If you don't have much real estate exposure in your portfolio, or if you want an investment that could be a big beneficiary of a falling-rate environment, this is one to put on your radar.
The bottom line is that these are three great options for dividend-seeking investors that take the hard work out of creating a portfolio of individual stocks. Obviously, the best choice(s) for you will depend on your risk tolerance, goals, and other factors, but one of these could be a good fit.
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Matt Frankel has positions in Vanguard Specialized Funds-Vanguard Real Estate ETF. The Motley Fool has positions in and recommends Chevron, Texas Instruments, and Vanguard Specialized Funds-Vanguard Real Estate ETF. The Motley Fool recommends Lockheed Martin and Verizon Communications. The Motley Fool has a disclosure policy.
