3 Top Dividend ETFs That Could Build Generation-Spanning Wealth

 

These three dividend-oriented ETFs provide a straightforward route to building enduring wealth through compound growth.

With market volatility and economic uncertainty in the spotlight, many investors are on the lookout for dependable wealth-building strategies. Though technology stocks have led the charge in returns since the 2008 financial crisis—outperforming even the surging real estate sector—they often endure significant price fluctuations and rely on ongoing advancements in artificial intelligence and automation.

Dividend-paying stocks, particularly those that consistently increase their payouts, have been reliable wealth creators since the early 20th century, no matter the market climate. The power lies in compound growth—by reinvesting rising dividends alongside regular investments, one can achieve significant wealth within a decade and even multigenerational prosperity over time. Instead of navigating the complexities of selecting individual dividend stocks, investors might consider dividend-focused exchange-traded funds (ETFs) with low expense ratios that offer high-quality holdings. Here are three dividend ETFs that could pave the way for lasting wealth.

A cost-effective strategy for dividend investing

The iShares Core Dividend Growth ETF (DGRO 0.50%) is notable for its low 0.08% expense ratio and emphasis on companies with sustainable dividend growth. This fund follows the Morningstar U.S. Dividend Growth Index, targeting U.S. companies with robust financial health and reliable dividend hikes.

To join this fund, companies must exhibit at least five years of continuous dividend growth, ensuring a portfolio comprised of financially stable businesses committed to rewarding shareholders.

The fund’s principal positions highlight its focus on established market leaders: ExxonMobil, Microsoft, Apple, JPMorgan Chase, and Chevron are among its top holdings. Currently, it provides an attractive 2.2% annualized yield.

In the last decade, the iShares Core Dividend Growth ETF delivered a total return of 216%, assuming dividends were reinvested and before tax considerations.

Focus on high yield for immediate income

The Vanguard High Dividend Yield ETF (VYM 0.68%) targets companies offering above-average dividends compared to the broader U.S. market. With a 0.06% expense ratio, it stands as one of the most affordable choices in its category.

The fund is skewed towards value-driven sectors like financials, healthcare, and consumer staples, offering yields significantly higher than the S&P 500.

At present, the Vanguard High Dividend Yield ETF boasts a yield of 2.83%, more than twice the benchmark S&P 500's average yield of 1.32%.

The fund's top holdings include Broadcom, JPMorgan Chase, ExxonMobil, Procter & Gamble, and Johnson & Johnson—reflecting its commitment to high quality. These core holdings are all reputable companies with solid dividend records.

The Vanguard High Dividend Yield ETF has achieved a 165% total return over the past decade. While not groundbreaking relative to the broader market, this is substantial for a dividend-centric ETF.

Quality blended with growth

The Schwab U.S. Dividend Equity ETF (SCHD 0.60%) distinguishes itself by merging stringent quality assessments with dividend growth potential. It tracks the Dow Jones U.S. Dividend 100 Index, selecting companies exhibiting strong fundamentals and reliable dividend histories.

Offering an appealing 3.47% yield—the highest among its peers considered here—and a competitive 0.06% expense ratio, this ETF stands out for its cost-efficiency in the high-dividend yield space.

The ETF’s meticulous selection process applies filters focused on financial robustness, consistent dividend expansion, and profitability metrics. A key criterion is a minimum 10-year record of consecutive dividend payments, setting a high bar for inclusion to ensure portfolio quality.

The fund’s leading holdings include industry titans like The Home Depot, Verizon Communications, Cisco Systems, BlackRock, and Texas Instruments, highlighting its emphasis on companies with solid cash flows and established dividend practices.

Over the past decade, this ETF has achieved an impressive total return of approximately 204%. Although it doesn't surpass the S&P 500’s returns, it stands out within the dividend ETF category by skillfully balancing income with capital 

Building wealth through dividends can be an effective strategy, and investing in ETFs with a focus on dividend growth offers a straightforward and efficient way to achieve long-term financial goals. These funds offer broad access to companies that pay dividends, while also keeping costs low and adhering to high selection standards.

Thinking about putting $1,000 into the iShares Core Dividend Growth ETF? Before making a decision, consider this:

The analyst team at The Motley Fool Stock Advisor has recently pinpointed what they consider the 10 best stocks for purchase at the moment, and iShares Core Dividend Growth ETF did not make their list. The selected stocks have the potential to yield significant returns in the future.

For example, Nvidia was included in the list back on April 15, 2005. If you had invested $1,000 following that recommendation, your investment would have soared to $861,121 by now.*

Keep in mind that the Stock Advisor's average total return is an impressive 819%, far surpassing the S&P 500's return of 170%. Don't miss out on exploring the latest