ETFs and mutual funds
Building out an income or dividend portfolio creates a steady flow of cash. What are some good examples of dividends ETFs and how do we compare them?
Adding a few dividend-paying ETFs to our portfolio is a great way to take advantage of dividend stocks without the requirements of analyzing individual companies. There are a few industries/sectors that consistently pay great dividends; Utilities, REITs, and Telecoms. Let's take a look at the sectors below and briefly compare 3 popular ETFs in each sector.
We'll compare expense ratio and yield. The best options are the ones with the highest dividends and lowest expense.
Utility companies provide basic amenities such as water, sanitation, electricity, and natural gas. These companies are essential for public infrastructure and are often heavily regulated by the government for price protection.
These companies can pay dividends because they operate under a cost-plus model.
For example, if it costs the company $20 to provide us electricity, the company may charge $30, a $10 markup. If costs rise to $30, our bill would be $40, ensuring profitability for the company.
REITs provide good exposure to the housing market without having to own a house or property. They are also required to distribute 90% of their earnings via dividends.
Real estate companies secure stable and long-term cash flow from rents and leases and distribute them back to the shareholders. However, the dividends from REITs are taxed differently.
Telecoms are large entrenched businesses because the cost to run lines and communication across the country is so high. New companies and startups just can't get the resources and amount of money to compete.
As a result, telecom companies have very little competition. They make a lot of money through multiple bundled services and pay stable dividend yields.
Adding REITs to your portfolio not only provides great income generation but also gives exposure to the real estate market if you don't currently own property. Your portfolio also benefits more from diversification if you include funds from different sectors like the ones above.
While these are some of the most popular ETFs, it's always a good idea to do your own due diligence before making any investment. It's important to find the ones that fit your specific investment goals. When in doubt, look for professional help!