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

However, the challenge with dividends is that they are not at all guaranteed payments. When a company cuts its dividend, its share price often goes down, so both the income and much of the capital it generated evaporates. Investing in ETFs rather than individual stocks can help protect this risk, as not every company will cut their profits all at once. With that in mind, these three ETFs can be retirees’ best friend in their quest to find a source of income once the business is over.

The Vanguard Dividend Estimation Index ETF (NYSEMKT: VIG) Seeks to track performance S&P US Dividend Growers IndexThis index looks for US-based companies that have had at least 10 years of increasing their earnings, excluding REITs. In addition, the index passes the top 25% of companies that would otherwise qualify.

This combination of factors helps the Vanguard Dividend Appreciation Fund ETF try to be in the “goldilocks” territory when it comes to dividend quality. When a company’s earnings are at risk of a cut, it often appears as a higher return, as the market begins pricing that risk. Although it’s not a perfect screen, keeping companies with higher returns out of the box helps mitigate the worst of these risks.

At a modest 0.06% expense ratio, investors benefit from investing in a fairly wide range of companies with a good dividend growth history at a low price.

The SPDR S&P Dividend ETF (NYSEMKT: SDY) Looking for high-return companies that are part of S&P Composite Index 1500 With a history of at least 20 years in increasing its profits. The S&P High Yield Dividend Aristocrats That the fund tracks is weighted to return, but adjusts its weights to ensure that no single stock has more than a 4% impact on the index.

The focus on high returns does not mean that it offers investors a somewhat larger dividend, about 2.3%, as opposed to the 1.8% of the previous fund. However, this high return comes with some trade-offs. First, its expense ratio is slightly higher, at about 0.35%. Second, companies that offer higher returns tend to also be slower growers than companies that don’t pay dividends. This is at least in part because every dollar spent in dividends cannot be reinvested to drive further growth for the company.

However, if you are looking to balance current income with the potential for income growth over time, then the SPDR S&P Dividend ETF is definitely worth considering.

Real estate has always been known as a cash-generating industry. As a result, a special type of company, known as a Real Estate Investment Trust (REIT), owns real estate and Should Pay out at least 90% of its earnings as cash dividends each year. A mandatory dividend payment pretty much assures that if a REIT is profitable, it will provide a decent return.

To take advantage of it, the Vanguard Real Estate Corporation ETF (NYSEMKT: VNQ) It seeks to track a stock REIT index that looks at the capitalization of all real estate/REITs, in contrast to US REITs. Vanguard REIT offers investors a portfolio of holdings with a modest 0.12% expense ratio. In return, investors get a reasonable current return of 2.2% and a high probability of at least some Income, no matter what the economy does, thanks to a mandatory dividend.

Plus, of course, with rents rising due to inflation, this leads to the potential for increased income for REITs owned by the Vanguard Real Estate ETF. When combined with the mandatory payments that REITs have to make, it provides a path to future income growth for ETF shareholders as well.

All three of these ETFs offer investors a current return that is higher than the total return Standard & Poor’s 500, while maintaining the potential for future income growth in the future. This makes them great candidates for retirees to consider as they look to cover their costs once their paychecks stop.

The thing to remember about dividend-focused investments, however, is that you must buy them before your previous dividend dates to get the next payment. So if you are interested in this type of investment, get started now, and boost your chances of seeing the income you are looking for.

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Chuck Saletta does not have a position in any of the stocks mentioned. Motley Fool has positions at the Vanguard Dividend Appreciation ETF and Vanguard Real Estate ETF. Motley Fool has a disclosure policy.