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The BEST 4 Dividend ETFs for Passive Income 2021

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The 4 Best Dividend ETFs to add to your portfolio for PASSIVE Income. I also talk about the Tax Implications and mechanically how Dividend ETFs pay out Dividends. Enjoy! WATCH NEXT: ► My $69,000 Dividend Portfolio REVEALED: https://youtu.be/Tyi–DTMo3Q

Fidelity Article:
https://www.fidelity.com/learning-center/investment-products/etf/dividends-on-etfs

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Timestamps:
0:00 – Starting Zone
0:58 – Format
1:21 – What is a Dividend ETF?
2:30 – Illustration of Dividend Mechanics
3:40 – Tax Considerations
5:01 – 4. Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
6:38 – 3. SPDR S&P Dividend ETF (SDY)
7:48 – 2. Vanguard Dividend Appreciation ETF (VIG)
9:03 – 1. Schwab U.S. Dividend Equity ETF (SCHD)

1. Overview
So in individual stocks, if you own the stock at least one business day before whats known as the “Ex-dividend” date, you receive the dividend. So if the ex-date as its known is on say, Monday May 3rd, if you own the stock on the prior business day, which would be April 30th, you would receive the dividend.

Now you're probably wondering, but Humphrey, if a Dividend ETF owns individual companies that pay out dividends on different dates, am I just continually getting dividends?

The answer is actually, no.

In most Dividend ETFs, you'll get paid out dividends quarterly. What they actually do is hold onto all the dividends of each company for you, and then pay them all out at once. They are typically paid in cash or in additional shares of the ETF.

In terms of the actual mechanics of how they figure out how much to pay you, the ETF pools together dividends that have been paid that quarter, and then distributes them proportionally to all the shareholders.

2. Taxes
In terms of taxes, the amount that you pay in taxes on dividends depends on if the dividend is “QUALIFIED” or not.

Qualified dividends are GOOD = if you hold the ETF for more than 60 days before the ex dividend date, AND the ETF holds the underlying stocks for more than 60 days before the ex-date, the tax that is long term capital gains – or between 0%-15/20ish percent most commonly.

Nonqualified is not as good, you'll pay ordinary income tax rates on nonqualified dividends, which are just any dividends owned for less than 60 days by either you or the ETF.

Now, that's why buying Dividend ETFs is best done in a Roth IRA – because any of those gains you receive on dividends will be tax free. If you want to learn more about Roth IRAs, I have a lot of videos on those that you can go ahead and check out.

Picks:
4. Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
This ETF just focuses on 50 stocks that offer above average dividend yields and lower price volatility, this is good for someone who wants a stable ETF investment that pays out.

3. SPDR S&P Dividend ETF (SDY)
This is the S&P Dividend ETF by State Street. According to their fact sheet, the fund “screens for companies that have consistently increased their dividend for at least 20 consecutive years, and weights the stocks by yield” which means the more dividend a company pays out, they'll buy more of that holding.

2. Vanguard Dividend Appreciation ETF (VIG)
This is the most popular fund with over $45 billion in assets, and this one actually focuses on Dividend Growth stocks – so it's kind of a blend of a traditional dividend ETF + a little bit of growth.

1. Schwab U.S. Dividend Equity ETF (SCHD)
This is one of the best Dividend ETFs out there in my opinion because of its cheap fees which I'll talk about shortly. “The fund’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Dividend 100™ Index.”

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PS: I am not a Financial Advisor, any investment commentary are my opinions only. Some of the links in this description are affiliate links that I do receive a commission for.

References
  • Huang, D. Y. , & Lin, C. Y. (2005). Customer-oriented financial service personalization. Industrial Management & Data Systems105 (1), 26–44. doi:10.1108/02635570510575171  [Crossref][Web of Science ®][Google Scholar]
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