Generating income from your investments is a nice thing. After all, you'll earn money without punching a clock and answering to a boss. However, astute investors can generate passive income.
Of course, that doesn't mean there's no work involved. After all, you'll need to pick the right investments that match your return and risk profile.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »
Rather than picking individual stocks, investing in exchange-traded funds (ETFs) offers diversification while offering shares that trade like equities. These three ETFs merit consideration for income-seeking investors.
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1. iShares Core High Dividend ETF
The iShares Core High Dividend ETF (NYSEMKT:HDV) tracks the Morningstar Dividend Yield Focus Index. Since it's not trying to actively beat a benchmark, it doesn't pay large costs, and it has a low 0.08% expense ratio. The index seeks to include companies with strong balance sheets that can maintain above-average dividend payouts.
The iShares ETF consists of 75 dividend-paying U.S.-based companies. Energy and consumer staple sectors, with 27.4% and 25.6% weights, respectively, account for over half of the ETF's holdings. That's followed by healthcare's 15.4%, utilities' 11.1%, and information technology's 10.4%. Other sectors have about a 3% or less weighting.
Turning to individual stock holdings, energy giant ExxonMobil accounts for nearly 9% of the ETF. That's followed by Johnson & Johnson (6.8% weight) and Chevron (6.2% weight).
The iShares Core High Dividend ETF had a 3.7% yield as of the end of 2024.
2. SPDR Portfolio S&P 500 High Dividend ETF
The SPDR Portfolio S&P 500 High Dividend ETF (NYSEMKT:SPYD) tracks the results of the S&P 500 High Dividend Index. The ETF charges a low 0.07% expense ratio, which benefits investors.
The index consists of 80 high-dividend-yield stocks in the S&P 500. But unlike the much better-known S&P 500, the S&P 500 High Dividend Index equally weights each stock. That means no individual holding will have an outsize influence on the ETF's performance.
But certain sectors have large weightings. Real estate tops the list with a 23% weight. Financials also have a sizable presence, accounting for 18.1% of the assets. Utilities make up 17.5% of the ETF, and consumer staples have an 11.3% weighting.
The SPDR Portfolio S&P 500 High Dividend ETF had a 4.4% yield as of Jan. 16. That's much higher than the S&P 500 Index's 1.2%.
3. Nuveen ESG Dividend ETF
The Nuveen ESG Dividend ETF (NYSEMKT:NUDV) invests passively in the Nuveen ESG USA High Dividend Index. The ETF has a 0.26% expense ratio. The index encompasses U.S. mid- and large-cap dividend-paying stocks having positive environmental, social, and governance (ESG) factors.
While ESG investing has become a political landmine, it should help investors reduce risk and enhance long-term returns. That's because these companies should be able to run more efficiently and avoid certain pitfalls.
As of Sept. 30, 2024, financials made up about 22.6% of the portfolio, followed by industrials (15.6%) and consumer staples (12%). The healthcare and information technology sectors round out the top five, with 11.9% and 10.1% weightings, respectively.
Home Depot was the largest stock position with a 2.1% weight as of Jan. 17. All other stocks had less than a 2% weight.
The Nuveen ESG Dividend ETF had a 2.5% dividend yield as of Jan. 1.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $357,084!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,554!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $462,766!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of January 21, 2025
Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron and Home Depot. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
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