Want Decades of Passive Income? Buy This Index Fund and Hold It Forever
Key Points
The Invesco High Yield Dividend Achievers ETF is the perfect choice for investors looking for high dividend yields over a long period.
It includes stocks that have the highest yields and the longest streaks of raising their dividends.
It is also a good portfolio diversifier, performing well in down markets.
Investing in exchange-traded funds (ETFs) is a simple and effective way to build wealth, particularly for investors who want to set it and forget it. That's why the two most popular investments in the world are ETFs that track the S&P 500 index.
The same idea applies to income or dividend investors. Amid the recent volatility, more investors are seeking stocks that generate reliable income via dividends to offset some of the losses elsewhere in their portfolios.
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A simple way to do this is to find an ETF that invests in nothing but stocks that generate consistent, high-yielding dividends. There are tons of dividend ETFs to choose from, but one of the absolute best is the Invesco High Yield Dividend Achievers ETF (NASDAQ: PEY).
Invesco High Yield Dividend Achievers ETF
The Invesco High Yield Dividend Achievers ETF is definitely an income ETF you can set and forget.
It tracks the Nasdaq U.S. Dividend Achievers 50 index, which is made up of the 50 stocks that have not only the highest dividend yields but also the longest streaks of raising their dividend payouts.
So with this ETF, you gain access to stocks like the chemical company LyondellBasell Industries (NYSE: LYB), which has a yield of 4.11% and has increased its dividend for 12 years straight. Another large holding is Verizon Communications (NYSE: VZ), which has a yield of 5.54% and has raised its dividend for 21 years in a row. It also invests in search firm Robert Half (NYSE: RHI), which has a 9.53% yield and 21 straight years of raises.
The index rebalances every quarter and is reconstituted every year, so if a yield drops or the company doesn't raise the dividend, it will be replaced with another.
The ETF has a high 4.67% distribution rate, which is a metric used to give investors a sense of how much the ETF has paid out to investors over the past 12 months.
A good diversifier
The primary benefit of the ETF is its consistently high dividend payout, but it is also a great diversifier, particularly in a down market.
Because it contains mostly stable, all-weather stocks, it tends to provide better returns relative to the overall market when the market is trading down. For example, it is up about 3% year to date, while the S&P 500 is down 1%.
But with its dividend reinvested, it has returned 4.7% this year, while the leading S&P 500 ETF, the State Street SPDR S&P 500 ETF (NYSEMKT: SPY) is down 0.5% with its dividend reinvested.
Similarly, in 2022, the last extended bear market, this ETF returned about 2% while the S&P 500 was down roughly 19%.
So this is a great ETF for investors looking for high yields and passive income for years to come. But it also works to balance out a portfolio, particularly in down markets.
Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.