[Samuel]

Interested in learning more about dividend ETF/ stocks. I’ve been hearing a lot about it. Can anyone help me understand how they work, what to look for, what kind of returns you can make with them?

[Merced]

In terms of returns 2-3% is normal for low-risk dividend ETFs and up to 5% for higher risk funds. I think they have a place in your overall strategy but you wont get rich from them. My personal approach is to go after higher ROI vehicles (10%+) and then when I transition from accumulation phase to preservation phase put my investments into safer places like Dividend ETF.

They are great to house in your ROTH as then you won’t get taxed on the pay outs.

Hope that helps!

[Steve]

Basically, some companies pay a dividend to return excess money to shareholders; the company doesn’t have anything better to invest in like growth, and the shareholders get some money without having to sell shares.

A dividend ETF will pick an index like S&P 500, and buy the companies that pay dividends in that index, and pay the dividends to its shareholders. So, like the index, you get a more balanced dividend better than some and worse than other stocks in the index, but you reduce the risk of one stock cutting its dividend and screwing your income stream.

You also don’t get the same return as the index ETF, since you won’t own the growth companies that usually contribute the most return.

[Author]

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