3 Dividend ETFs to Buy for An Incredible Passive Income Stream in Retirement

Dividend paying stocks are attractive for a number of reasons. For investors looking to combat the effects of inflation on their savings, investing in companies that not only provide capital appreciation upside as prices rise, but also pay back a percentage of their earnings to investors in the form of dividends, is a time-tested strategy that still holds water (even though many top growth stocks have blown value/dividend stocks out of the water in terms of total returns over the past decade and a half).

That said, there is a growing cohort of investors who choose dividend-paying equities over growth stocks in this environment precisely due to where valuations are today.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

One of the most underrated exchange traded funds (ETFs) in the market for cautious investors is the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD).

As its name suggests, SPHD tracks some of the lowest volatility stocks among the 50 highest-yielding names in the S&P 500. Thus, this is an ETF that nicely balances both yield for investors seeking more of their return from the income component companies can provide, alongside some risk management properties I think are attractive, especially now.

Yes, overall volatility has come down considerably from the tariff-induced spike we saw in April. But given the weakening jobs market, and indications that stocks may be more overvalued than during previous bubbles, taking a cautious approach to investing in any equity security right now is a strategy I think is at least worth considering.

What’s also worth noting about this particular fund is SPHD’s outsized exposure to key defensive sectors such as real estate, utilities and consumer staples. Now, if we do get a meaningful recession, all stocks will get hit. But these are some of the sectors investors will want to own as a way to ride out the pain.

With a 3.5% dividend yield and meaningful capital appreciation upside during most market cycles, this is a top dividend ETF to consider right now.

Fidelity High Dividend ETF (FDVV)

Another top ETF I’ve long thought deserves more discussion in the financial media is the Fidelity High Dividend ETF (FDVV). This 3% yielding ETF comes in near the middle of the range in terms of yields on this list. But for investors who have Fidelity accounts, I think this is among the top dividend ETFs provided by this issuer, for a few reasons.

First, investors get a mix of both large and mid-cap exposure to some of the highest-yielding U.S. names. Given where valuations are right now, dividend yields are inherently lower in the U.S. than in other global markets. But in terms of balance sheet strength, stability, and dividend growth potential, this is an ETF with premier holdings investors looking for quality can sleep well at night owning.

What’s also interesting about the Fidelity High Dividend ETF is this fund’s focus on sorting its holdings by fundamentals. The managers behind this ETF have targeted key metrics such as earnings and dividend growth as key criteria for determining whether a stock fits in this fund. Thus, those who choose FDVV as a dividend ETF holding can both capture the growth upside of many top growth names in the market while managing their concentration risk and mitigating risks around dividend cuts which can hamper many similar ETFs during downturns.

Vanguard High Dividend Yield ETF (VYM)

Last, but certainly not least on this list of dividend ETFs worth buying is the Vanguard High Dividend Yield ETF (VYM). With the lowest yield on this list at 2.5%, investors still generate much more income than holding a basket of stocks in most indexes (the yield on the S&P 500 is still around 1.1% at the time of writing).

In that context, investors who own this flagship dividend ETF are getting more than twice the yield of the market, while holding most of the top growth names that have taken the S&P500 and other major indices on wild rides higher in recent years. In other words, for those who are concerned about missing out on the upside the market can provide, this is a top dividend ETF worth considering.

As one might expect, VYM holds higher exposure to key growth areas of the economy such as technology and financials, with significant consumer defensive exposure as well. This allows for the kind of defensive growth profile most long-term investors will want to hold for the decades to come.

I’ve long been partial to Vanguard as an ETF provider, partly due to the very low expense ratios this provider offers. That’s the case with VYM as well, and this dividend ETF’s extensive diversification really speaks for itself.

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