Ask people what they have invested in right now to save for retirement, and most of them will probably say: S&P 500The Nasdaq 100Tech Stocks, or the Magnificent Seven. These are all easily defensible choices, but a complete retirement portfolio should include much more than that.
Dividend Exchange-Traded Fund (ETF) Was not in favor of it for some time till 2026. Moving away from technology leadership alone has opened up opportunities for dividend payers. On the surface, these stocks may not be as exciting as the artificial intelligence (AI) stocks that have dominated the narrative. But their combination of steady long-term growth and predictable income makes them an underestimated piece of the retirement puzzle.
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key takeaways
- Dividend ETFs build wealth in two ways: share price appreciation and dividend income. Combined, these two return sources can grow significantly over long holding periods.
- Regardless of where you are in the retirement savings cycle, dividend ETFs complement a portfolio heavily invested in tech stocks and the S&P 500 very well.
- Since 1940, dividends have accounted for 34% of the S&P 500’s total returns, although it has been much lower in recent decades.
- These three dividend ETFs consider balance sheet quality, yield, and dividend growth.
Why Dividend ETFs Can Make You a Retirement Millionaire?
While the market’s focus over the past two decades has been primarily on technology and growth stocks, dividends have traditionally made up a significant portion of the S&P 500’s total returns over time. Since 1940, about one-third of the index’s returns have come from dividends.
For retirement savers and those living in retirement, it just doesn’t provide a separate source of returns. This may provide an element of risk reduction. Dividend payers are traditionally more conservative, mature companies that have the financial wherewithal to withstand many different economic environments.
As we see in 2022, dividend stock And the ETF performed very well when tech and growth stocks were falling. From a principal protection standpoint, dividend ETFs provide a good risk-and-return complement to broad market stocks.
Three Dividend ETFs to Consider
There are over 150 US and international dividend ETFs to consider. Most of them will do a reasonable job of getting you to the retirement finish line. But there are three that I think are exceptional choices:
- Schwab US Dividend Equity ETF (SCHD +0.54%)
- iShares Core High Dividend ETF (HDV +0.48%)
- WisdomTree US Quality Dividend Growth ETF (DGRW +0.60%)
What I like about these ETFs is that they all have some type of quality screening built in. They aren’t just investing in high-yield or dividend growth stocks. They are targeting companies in a financial position to maintain dividend payments in the future.
Schwab US Dividend Equity ETF
today’s change
(0.54%) $0.17
current price
$31.69
key data points
day limit
$31.35 -$31.77
52wk range
$25.50 -$32.13
volume
202K
Schwab US Dividend Growth ETF Looks for dividend growth and high yields in the companies in which it invests. The iShares Core High Dividend ETF seeks high yield within a universe that meets quality criteria set by Morningstar. The WisdomTree US Quality Dividend Growth ETF is a traditional fund targeting forward-looking dividend growth potential.
For dividend stocks, slow and steady is the theme. Save consistently and for a long time, and they can make you a millionaire.
David Dierking No positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has one Disclosure Policy.