Like a plant with water, sunlight, and fertilizer, you can make $10,000 grow over time with the right ingredients. There’s no need to make it complicated, as exchange traded funds (ETFs) that pay dividends are the ideal growth ingredients for your portfolio.
The formula is to make investments of $4,000, $3,000, and $3,000 in relatively low-risk dividend ETFs. Since we’re choosing funds that are already diversified, we can diversify even further with allocations into three different ETFs.
It’s a sensible plan that could turn your $10,000 portfolio into an income-generating juggernaut. Without further ado, let’s get the scoop on the first of three fabulous funds that will pay you consistent cash dividends.
State Street SPDR S&P Dividend ETF (SDY)
What results would you get if you picked out some dividend growth superstars from the S&P 500? That’s the idea behind the State Street SPDR S&P Dividend ETF (NYSEARCA:SDY), which focuses on “companies that have consistently increased their dividend for at least 20 consecutive years.”
That’s a high bar, and not every dividend-paying S&P 500 member will clear this bar. Just a few examples of stocks on the State Street SPDR S&P Dividend ETF’s holdings list are Verizon Communications (NYSE:VZ), Target (NYSE:TGT), Chevron (NYSE:CVX), and PepsiCo (NASDAQ:PEP).
All in all, there are 155 holdings in the SDY ETF. Thus, with a $4,000 investment out of $10,000 in total, you’re already diversifying your portfolio across multiple economic sectors.
Granted, you’ll end up paying an annual expense ratio of 0.35% with the State Street SPDR S&P Dividend ETF. This means $0.35 of every $100 invested in the SDY ETF will be deducted per year from the share price. It’s not exorbitant when you consider what you’re getting.
Along with a diversified fund, you’re also getting growth potential. Notably, the State Street SPDR S&P Dividend ETF’s share price has risen 40% over the past five years.
You’ll also get quarterly cash payouts, as the SDY ETF features a 2.35% annual distribution/dividend yield. As you can surely tell, we’re off to a strong start in maximizing the income-producing potential of our $10,000 account.
Vanguard High Dividend Yield ETF (VYM)
At first glance, the name of the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) might sound like it’s a fund that just chases after big yields. However, a closer look reveals a well-rounded fund that deserves a $3,000 investment.
First of all, the Vanguard High Dividend Yield ETF is a supremely affordable dividend fund. Its annualized expense ratio is just 0.04% (or $0.04 for every $100), so you’ll hardly notice the deduction of the operating fees.
For that tiny price, you’ll get exposure to the vast 562-member holdings list of the VYM ETF. You’ll find market leaders like JPMorgan Chase (NYSE:JPM), Procter & Gamble (NYSE:PG), Walmart (NYSE:WMT | WMT Price Prediction), and Broadcom (NASDAQ:AVGO) on that star-studded holdings list.
A powerful performer, the Vanguard High Dividend Yield ETF is up 63% over the past five years. That doesn’t include the dividend payments, and if you buy shares of the VYM ETF right now, you can take advantage of the fund’s 2.33% dividend yield.
So far, we’ve allocated $4,000 into the highest-conviction dividend ETF, SDY. Then, we committed $3,000 toward a low-cost dividend fund, VYM. To wrap it all up, we’ll now purchase $3,000 worth of a dividend ETF that explores far-away shores.
iShares International Select Dividend ETF (IDV)
The final $3,000 of a $10,000 account could be dedicated to shares of the iShares International Select Dividend ETF (CBOE:IDV). This will truly put you into an elite class of well-diversified portfolios.
While the 0.5% expense ratio is a little bit on the high side, it’s not outrageous. Indeed, it’s a bargain because the iShares International Select Dividend ETF features a 124-member holdings list of intriguing international businesses.
The IDV ETF’s fund managers selected standout companies like Vodafone (NASDAQ:VOD), Mercedes-Benz (OTC:MBGYY), British American Tobacco (NYSE:BTI), and Rio Tinto (NYSE:RIO). You might not recognize every name on the fund’s holdings list, but that’s fine as IDV focuses on “established, high-quality international companies.”
Moreover, the iShares International Select Dividend ETF specifically chose non-U.S. businesses that have “provided consistently high dividend yields over time.” This helps to explain how the IDV ETF manages to provide a lofty 4.63% dividend yield.
All of a sudden, that 0.5% expense ratio doesn’t seem so bad. With the iShares International Select Dividend ETF, you might anticipate high dividend payments as well as share-price appreciation.
It’s encouraging to know that, during the past five years, the IDV ETF’s share price grew 42%. Consequently, the iShares International Select Dividend ETF is worthy of a $3,000 investment to complete your well-considered $10,000 dividend portfolio.