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Today, the investment landscape has transformed significantly due to the rise of index investing and the introduction of exchange-traded funds (ETFs). If I were to embark on investing now, the increased range of opportunities would likely steer me towards ETFs and a stronger emphasis on saving money, a crucial aspect for most investors seeking long-term financial success. So, which dividend ETFs should I consider? I find that the Schwab US Dividend Equity ETF, S&P Portfolio S&P 500 High Dividend ETF, and Amplify CWP Enhanced Dividend Income ETF collectively offer extensive coverage in the realm of dividend investing.
What sets Schwab US Dividend Equity ETF apart? This ETF specifically targets companies that have consistently raised their dividends annually for at least ten years, excluding real estate investment trusts (REITs). This aligns with my preferences, emphasizing firms committed to enhancing shareholder value through dividends and maintaining solid operational performance. Moreover, the ETF employs a selection process based on criteria like cash flow to total debt, return on equity, dividend yield, and five-year dividend growth rate to identify the top 100 stocks. These stocks are then weighted by market capitalization, resulting in a portfolio of top-quality, high-yield dividend growth stocks. With a minimal expense ratio of 0.06%, the ETF offers a dividend yield of around 3.5%, significantly higher than the S&P 500 index’s yield of 1.2%.
Moving on to S&P Portfolio S&P 500 High Dividend ETF, this ETF complements the Schwab US Dividend Equity ETF by addressing certain areas of the market not covered by the former, such as REITs and utilities. The selection process is straightforward, focusing on the 80 S&P 500 index companies with the highest yield, which can lead to a concentration in REITs and utilities, as well as inclusion of high-yield stocks with turnaround potential. With an expense ratio of 0.07% and a yield of 4.2%, this ETF adopts an equal-weighting approach to mitigate risk and ensure each investment contributes proportionately to performance.
To further enhance dividend income strategies, the Amplify CWP Enhanced Dividend Income ETF incorporates the tactic of selling covered calls. While this strategy adds complexity, it can provide additional income opportunities. By combining these two ETFs along with a covered call strategy, investors can create a diversified dividend portfolio that captures a broad spectrum of dividend investing opportunities.
The WP Enhanced Dividend Income ETF is a key player in my investment strategy. If I were to start afresh, I would definitely choose this ETF again, despite its somewhat high 0.56% expense ratio. Specialized investing like this often commands a premium price tag, and the potential benefits make it worth considering.
The Amplify CWP Enhanced Dividend Income ETF stands out as an actively managed fund. The managers follow a straightforward approach of selecting around 30 high-quality dividend stocks and strategically writing covered calls on the portfolio. This aligns with my own investment preferences if I were to create a covered call portfolio. The main advantage here is the ability of covered calls to generate additional income for investors. While the dividend yield may fluctuate due to the covered call strategy, it currently stands at around 4.5%.
When it comes to building a diversified portfolio, leaning towards quality is paramount. If I were curating such a portfolio, I would likely allocate 50% to 60% of it to the Schwab US Dividend Equity ETF, despite its lower yield, given its focus on quality stocks. The remaining portion would be evenly split between the S&P Portfolio S&P 500 High Dividend ETF and the Amplify CWP Enhanced Dividend Income ETF. This allocation strategy would help enhance yield, minimize risk, and create a well-rounded investment mix. To further diversify, I might consider adding a broad-based bond ETF to the mix, ensuring a well-balanced portfolio that aligns with my investment goals.
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Disclosure: Reuben Gregg Brewer holds positions in Amplify ETF Trust-Amplify CWP Enhanced Dividend Income ETF. The Motley Fool does not have any holdings in the mentioned stocks and abides by a strict disclosure policy.
