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Investing is a way to put your money to work and help it grow into something bigger. And one of the best ways to do that is by investing in high dividend ETFs.
What’s an ETF, you ask? The concept of the ETF was born in the stock market boom of the 1980s. ETF stands for exchange-traded funds and they are bundles of assets that you can buy and sell.
While it took a little while for the idea of ETFs to catch on, they have exploded in popularity. There were only 276 ETFs in 2003. In less than 20 years, the total amount would grow by more than 3,000% and reach 8,552 by 2021. You’ve got a lot of options and won’t be able to invest in all of them. Here are the best four that you should look into first:
- Which ETFs have the highest dividends?
- Why you should try investing
- What are ETFs?
- Use the right ETF to start investing today
Which ETFs have the highest dividends?
1. JP Morgan Diversified Return International Equity ETF (JPIN)
You can argue that the JPIN isn’t sold as a dividend ETF. However, it comes with a very high yield-to-expense ratio, which puts it number one on this list. The JPIN features a diverse collection of companies from around the world. Thirty percent of the portfolio are companies based in Japan, with another 20% coming from the UK. The rest are companies from Australia, South Korea, Hong Kong, France, Sweden, Germany, and many others.
The annual dividend yield for JPIN is 6.53% and comes with an expense ratio of only 0.37%. You aren’t going to find a much more profitable ratio on this list or anywhere else, for that matter. You should consider this ETF your priority and look into it first.
2. Vanguard High Dividend Yield ETF (VYM)
The VYM includes an incredibly diverse group of 446 large-cap U.S. stocks screened based on dividend payouts. VYM is dividend investing through a dividend exchange-traded fund, dividing the annual dividend per share by the latest share price and only going after those with the highest yields. With a high market cap and low volatility, the ETF has top holdings across the financial, health care, and consumer-based sectors and includes stakes in JPMorgan, Johnson & Johnson, and Procter & Gamble.
The annual dividend yield for VYM is only 2.80%, but the expense ratio is a ridiculous 0.06%. In other words, a $100,000 investment will only cost you $60 in annual fees. You might not see a sizable total return as other ETFs, but you definitely won’t see one that costs less.
3. iShares International Development Property ETF (WPS)
The WPS is like a REIT (real estate investment trust), which includes a wide variety of public property investment firms located outside the U.S. These international real estate investments and trusts are an easy way for investors to diversify their portfolios at a low cost. WPS doesn’t stick to any particular real estate sector and is involved with industrial, retail, and residential firms. The majority of assets are located in Japan (26%), with Australia (13%) and Hong Kong (9.5%) rounding out the top three.
The annual dividend yield for WPS is 5%, one of the highest on the list. The reason that it’s not higher is that the expense ratio is the highest. At 0.48%, you’ll be paying a hefty price for your dividends.
4. Schwab U.S. Dividend Equity ETF (SCHD)
The SCHD passively tracks the Dow Jones U.S. Dividend 100 Index. There are only 104 stocks in the SCHD, making it less diversified than other options. However, the low price-to-earnings and price-to-book ratio provide much better exposure to value stocks. Some of the prized holdings in the SCHD include Texas Instruments, Pepsi, and Home Depot.
The annual dividend value for SCHD is 3.18% and matches the VYM expense ratio of 0.06%. The lack of diversification is the only reason the SCHD didn’t beat the VYM. But from a pure profit margin standpoint, the SCHD is much more lucrative.
Why you should try investing
Entering the world of investing can be an overwhelming concept for beginners. A lot is going on, and trying to catch up with the market when it’s constantly changing can be challenging.
However, there’s too much money at stake to just sit on the sidelines and watch. You will need to get in the game to grow your business and personal wealth value.
The reality is that investing comes with a lot of risk. There’s no such thing as a “sure thing” when investing. However, ETFs can be an excellent way for beginners to mitigate potential risks and losses.
Similar to index funds, they reduce volatility while helping provide consistent payouts. They can help you to break into emerging markets, learn about how investment strategy works, and generate some capital gains in the meantime.
What are ETFs?
Exchange-traded funds, or ETFs for short, are pooled investment securities that function similarly to mutual funds. ETFs and mutual funds contain multiple assets and usually follow a specific index, commodity, or sector. The main difference between an ETF and a mutual fund is that ETFs are bought and sold on the stock exchange. In other words, an ETF has the benefits of a mutual fund and the flexibility of regular stock.
Multiple types of ETFs are designed to serve different purposes for investors. These are a few examples of the ETFs that are available on the market:
- Stock ETFs. A stock ETF is the most common type of ETF and typically tracks multiple stocks within a single industry or sector. The goal is to create a diverse portfolio within a single industry with high performance and room to grow. While these ETFs function similarly to stock mutual funds, a stock ETF typically comes with lower fees and doesn’t include ownership of the securities.
- Passive/Active ETFs. An ETF is usually classified as being either passive or actively managed. A passive ETF usually tracks a specific index, and the portfolio is updated to match changes in the reference index. An active ETF has an investment manager overseeing various securities portfolios. An active ETF can provide more benefits than a passive ETF, but it will be much more expensive.
- Bond ETFs. A bond ETF can provide regular income to an investor based on the underlying bonds’ performance. These bonds can include corporate bonds, government bonds, and municipal bonds. The good thing about bond ETFs is that they don’t have a maturity date like these and are usually traded at a discounted rate of the bond price.
- Commodity ETFs. A commodity ETF is centered around investing in commodities such as oil or gold. The idea is to diversify the investments so that any economic downturns in one commodity won’t hurt your entire portfolio. Another benefit of a commodity ETF is that they’re usually much cheaper than owning the physical commodity. There are no costs of storage, security, or insurance involved.
- Currency ETFs. A currency ETF focuses on the performance of domestic and foreign currencies. The overall value of a country’s currency can increase or decrease based on the political and economic machinations of the country. The value of international currency functions in a very similar way to the stocks of a company and currency ETFs are used to track these changes.
- Industry ETFs. A sector ETF includes funds focused on a specific industry such as energy or automotive. By tracking the most successful companies within a particular industry, you can witness the overall potential upside of the entire industry. You would be investing in a whole industry instead of an individual company.
- Inverse ETFs. An inverse ETF is designed to generate profits by shorting other stocks. The idea is to sell a stock you expect to see a decline in value and then repurchase it at a lower price. You would make money from the sale and still wind up owning the stock. Technically, an inverse ETF qualifies as an exchange-traded note (ETN) instead. ETNs are bonds traded like stocks and backed by whoever issued them.
- Leveraged ETFs. A leveraged ETF is designed to seek returns that are multiplied by those of the underlying investments. If the assets rise by 1%, the leveraged ETF will increase by 2%. However, the opposite is true, as the ETF would drop in value by 2% for every 1% investment drop. The ETF is leveraged by various options or futures, which help to prop up their return on investment.
Use the right ETF to start investing today
You don’t have to invest your life savings to generate a profit. It’s a good idea to get started with something small so that you understand how investing works and learn what to expect. Investing in an ETF is one of the best ways to break into the world of investing. Although ETFs haven’t been around long, they’ve quickly become one of the most popular options. You don’t want to miss out on the potential profits from an ETF investment. Choose one from the list above and get started today.
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Information provided on Entrepreneur Guide is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, we do not recommend or advise individuals to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results