The Best Dividend ETF to Invest $1,000 In Right Now

If you're seeking income, you have lots of options. You could invest in real estate properties and collect the rent. You could buy bonds. You could put your money in dividend stocks.

Many investors prefer the last of those alternatives for two key reasons. Dividend stocks involve less hassle than purchasing and managing real estate. They also can protect against inflation when dividend payouts increase.

Exchange-traded funds (ETFs) offer an easy way to invest in a large basket of dividend stocks. What's the best dividend ETF to invest $1,000 in right now?

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What to consider with dividend ETFs

You still have to do some research when choosing a dividend ETF to buy. Some are much better than others. Let's look at a few of the key criteria you'll want to consider.

An obvious one is the ETF's dividend yield. You'll ideally want a relatively high yield because it means higher income. However, some funds with extraordinarily high yields can be risky. The best way to compare dividend ETFs on this front is to look at their 30-day SEC yields. This percentage reflects the income per share generated by the ETF over a 30-day period after adjusting for expenses divided by its maximum price per share on the last day of the period.

Fees are another important factor to evaluate. Every ETF should disclose its annual expense ratio, which is the fund's operating expenses divided by its average assets. The lower the expense ratio is, the better.

You'll want to check out how diversified the ETF's portfolio is, too. ETFs with a large number of stocks spanning multiple sectors provide more diversification than those with fewer stocks concentrated in select sectors.

Don't overlook the reputation of the ETF and its manager, either. One way to compare funds is to look at their Morningstar ratings.

Finally, consider the dividend ETF's historical performance. Granted, past performance doesn't necessarily indicate similar results in the future. However, it's important to know if a given ETF has been a big loser over the long run.

The best dividend ETF to buy

With all of this in mind, I think the best dividend ETF to invest $1,000 in right now is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). This fund's 30-day SEC yield is 3.55%, a level many income investors should find attractive.

You won't pay exorbitant fees with the Schwab U.S. Dividend Equity ETF. Its annual expense ratio is only 0.06%. The ETF can keep its costs low because it's passively managed and attempts to track the performance of the Dow Jones U.S. Dividend 100 Index.

The Schwab U.S. Dividend Equity ETF owns 103 U.S. stocks with records of consistent, high-yield dividends. Its top holdings include Cisco Systems, Blackrock, The Home Depot, Lockheed Martin, and Chevron. The ETF's stocks represent 10 sectors. It's most heavily invested in the financial sector, which makes up 17.3% of the total portfolio.

This fund is managed by Charles Schwab, a respected financial services company that has been in business since 1971. The Schwab U.S. Dividend Equity ETF earned a Morningstar Medalist Rating of Gold -- the highest rating possible for an ETF. Indeed, a Morningstar report in May 2024 called it "one of the best dividend funds available."

What about performance? This Schwab ETF has delivered an average annual return of 13.38% since its inception on Oct. 20, 2011. Its total return in 2024 so far is around 15%.

Two cautionary notes

Investors should understand two things about the Schwab U.S. Dividend Equity ETF. First, it's possible that the ETF's dividend yield won't remain as lofty as it is now. The yield was below 3% throughout much of the past 10 years. Second, the fund's performance might not be as strong going forward as it has been historically.

That said, there's little not to like with this dividend ETF. For investors seeking income, the Schwab U.S. Dividend Equity ETF appears to be the best choice on the market in my view.

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Keith Speights has positions in Chevron. The Motley Fool has positions in and recommends Chevron, Cisco Systems, and Home Depot. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.