These 3 Dividend Funds Are Retirees’ Best Friend | personal financing

If you’ve largely finished working for a living and are now looking for your own nest egg to save money for your expenses, a variety of dividend-paying stocks can do the job. However, there may be a simpler and safer solution: exchange-traded funds (ETFs). In addition to the fact that it can give you more variety than you can usually achieve by picking stocks yourself, owning this money will also allow you to focus on enjoying your golden years without having to keep constant tabs in your portfolio.

Here are three profitable mutual funds that current and future retirees should consider.

iShares Select Dividend ETF

This doesn’t mean you should – or should – be limited to one dividend-focused exchange-traded fund, but if you want to own only one fund, iShares Select Dividend ETF (NASDAQ: DVY) He is the one.

Designed to mirror the Dow Jones US Select Dividend Index, the ETF holds about 100 hand-picked, higher-yielding US stocks, each with at least a five-year history of paying dividends. However, most of her holdings have much longer track records. Some of their biggest sites include AltriaAnd the Valero EnergyAnd the IBMThey are among the biggest collectibles precisely because they yield above-average returns. Collectively, the fund’s current dividend yield is near 3.2%.

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The utilities segment is the fund’s largest, accounting for about a quarter of its assets. Most other sectors account for 12% or less, so risks are well spread out. Utility sector players are arguably among the most reliable profit payers in the world, because people place an understandably high priority on keeping their lights and water running.

While the iShares Select Dividend ETF is a great all-round choice, like any other investment, it does come with a trade-off: while it allows you to access a healthy return now, you won’t necessarily see The growth of payments beating inflation. This may not be a problem for you, but if so, there is a solution.

Vanguard Dividend ETF

This solution is also an investment in Vanguard Dividend ETF (NYSEMKT: VIG). As the name suggests, its portfolio is specifically designed to provide reliable growth in payments over time.

The fund’s stock-picking strategy is simple enough – it replicates the S&P US Dividend Growers Index, which includes only US stocks with a track record of at least 10 years of annual dividend increases. This group includes names like Johnson & Johnson And the Microsoft.

However, the index also excludes the top 25% of indices that may qualify for inclusion. Index managers assume that if the stock’s return moves to that high, it ultimately carries a lot of risk – the remaining 75% will be fine. The end result is a lot of price stability, which is what most retirees want. The beta version of this box is only 0.84, which means that it only moves (on average) about 84% until Standard & Poor’s 500 He does any day.

The trade-off with this ETF is its relatively low return – currently around 1.8%. So if you open a position, you will not get much money early. It might still be worth it though. The fund’s current annual per-share payment of $2.86 is nearly 70% more than the fund’s earnings five years ago, while the ETF’s own shares are up more than 50%.

First Trust Preferred Securities and Income Funds

Finally, if you actually secure some assets with reliable dividend yields and also have some dividend growth potential, it wouldn’t be crazy to take more risk in an ETF that is designed to offer significantly stronger returns. This higher risk retention should make up the smallest portion of the ETF holdings from your stock earnings, and you still don’t want to risk as much of your portfolio. A fund that owns nothing but preferred stock can do the trick, and First Trust Preferred Securities and Income Funds (NYSEMKT: FPE) It is one of the best of this breed.

If you are not familiar, the file preferred stock It is something of a mixture of common stocks and bonds. Most come with a fixed coupon rate, although unlike bonds, preference dividend payments are not necessarily legal debt obligations. That’s why they tend to offer higher returns than traditional bonds – there’s a bit more risk involved. However, the preferred dividend is almost always more Guaranteed by dividend payments on corporate common stock, which is why their returns are usually higher than those most of us see on a regular basis. The downside: Preferred stocks rarely offer the possibility of a significant capital appreciation, whereas common stocks do.

In other words, preferred stocks are compelling only if you want above-average returns right now and don’t necessarily need dividend growth or capital growth.

But what does it produce? The current dividend yield for the First Trust Preferred Securities and Income Fund is 7.4%, and the fund has not failed to make some type of monthly payment since 2013, when it was launched.

Again, it’s not a great first or only ETF. The yield hasn’t increased much over the nine-year period, and the ETF itself is more or less priced where it was when it launched. Owners have been collecting big profits all along, in an environment where returns and interest rates on other types of holdings have been painfully low.

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James Bromley He has no position in any of the mentioned shares. Motley Fool has positions at Microsoft and the Vanguard Dividend Appreciation ETF and recommends. Motley Fool recommends Johnson & Johnson. Motley Fool has a profile Disclosure Policy.

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