Latest news with #iSharesTrust
Yahoo
3 days ago
- Business
- Yahoo
DVY Is a Popular Dividend ETF for Passive Income. But Is It the Best?
The iShares Select Dividend ETF offers a 3.7% yield. The exchange-traded fund holds a curated list of 100 stocks, weighted by yield. Investors looking for an ETF that screens for the best dividend stocks can do better. 10 stocks we like better than iShares Trust - iShares Select Dividend ETF › Income investors often focus on a stock's dividend yield, but dividend yield alone doesn't provide anywhere near enough information when it comes to selecting exchange-traded funds (ETFs). For example, the iShares Select Dividend ETF (NASDAQ: DVY) is a popular fund with over $20 billion in net assets, thanks largely to its 3.7% yield. But at the end of the day, this iShares ETF may not be the best choice for most income investors, and the reasons become clear when comparing it to another dividend-focused ETF. The iShares Select Dividend ETF tracks the Dow Jones U.S. Select Dividend Index, which uses certain screening criteria to buy 100 financially strong dividend payers and then weights them by dividend yield. This means the highest-yielding stocks make up the biggest positions for the fund and have the biggest impact on its performance. The index's screening process has these requirements for its holdings: They paid dividends in each of the past five years. Dividends increased over the five-year span, though not necessarily in every year. They had positive earnings over the past year. The ratio of net income to dividends paid, or dividend coverage, is 167% or better. From the resulting list, which excludes real estate investment trusts (REITs), the 100 highest-yielding stocks are included in the Dow Jones U.S. Select Dividend Index and, thus, the iShares ETF. The iShares Select Dividend ETF has a dividend yield of around 3.7% as of this writing, which compares favorably to the S&P 500 index's roughly 1.3% yield. However, the fund's expense ratio is rather high for an ETF at 0.38%. The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) also holds 100 stocks, though in this case, the fund's portfolio is market-cap weighted. That means the largest companies have the greatest impact on the fund's performance. The Schwab ETF's screening criteria are also different as it tracks the Dow Jones U.S. Dividend 100 index instead. This index only includes companies that have increased their dividends every year for at least a decade (again, REITs are excluded). A composite score is calculated for each of these companies by looking at their ratio of cash flow to total debt, return on equity, dividend yield, and five-year dividend growth rate. The 100 companies with the highest composite scores make into the index. The Schwab ETF boasts a higher yield of 4.0%. Its expense ratio is also lower at 0.06%. With that information, picking the better overall dividend ETF for your portfolio should be fairly easy if you're looking to maximize income: The Schwab U.S. Dividend Equity ETF has a higher yield. But don't stop there because a higher yield isn't the only thing you're getting with the Schwab ETF -- it's also much less expensive to own. An investor with $10,000 invested in each option would owe $38 in fees to the iShares fund versus just $6 to the Schwab fund. With fees paid annually on the total value of your position in each ETF, the higher expense ratio can add up to hundreds or thousands of dollars over time. The real icing on the cake, however, is evident by comparing the returns these two ETFs have provided to investors. The Schwab ETF's price performance has beaten that of the iShares ETF over the past decade. And as the chart above highlights, so has its total return, which includes the reinvestment of dividends. Taking these key performance metrics into account, it appears the screening process backing the iShares Select Dividend ETF falls short. If you're a dividend investor who wants an ETF that screens for quality stocks, the Schwab U.S. Dividend Equity ETF is worth a look. Before you buy stock in iShares Trust - iShares Select Dividend ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and iShares Trust - iShares Select Dividend ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $697,627!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $939,655!* Now, it's worth noting Stock Advisor's total average return is 1,045% — a market-crushing outperformance compared to 178% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 30, 2025 Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. DVY Is a Popular Dividend ETF for Passive Income. But Is It the Best? was originally published by The Motley Fool
Yahoo
19-06-2025
- Business
- Yahoo
$1,000 in AGG Could Turn Into $4,200
The iShares Core U.S. Aggregate Bond ETF provides investors with broad exposure to the bond market. The bond ETF has a lower risk and lower return profile. It can help investors diversify their portfolios and reduce risk. 10 stocks we like better than iShares Trust - iShares Core U.s. Aggregate Bond ETF › The iShares Core U.S. Aggregate Bond ETF (NYSEMKT: AGG) is one of the biggest exchange-traded funds (ETFs) focused on the bond market. AGG has over $126 billion in total assets under management (AUM). That puts it right behind the Vanguard Total Bond Market ETF, which leads with over $129 billion in AUM. Investing in bonds (either directly or indirectly through ETFs like AGG) helps investors build a more diversified portfolio and generate income, which helps lower risk. Here's a look at how much an investment of $1,000 in AGG could turn into in the future and why investors would want to consider investing in a bond ETF. The iShares Core U.S. Aggregate Bond ETF, or AGG, provides investors with broad exposure to U.S. investment-grade bonds. Investment-grade bonds are fixed-income investments with a lower risk of defaulting than non-investment-grade or junk bonds. They enable investors to lower the risk profile of their portfolio and generate investment income. This fund currently holds over 12,600 bonds with maturities of as much as 20-plus years in the future. It has U.S. Treasury Bonds (45% of its holdings); mortgage-backed securities or MBS (24% backed by residential mortgage, and 1.5% backed by commercial mortgages); bonds issued by corporations (14% industrial, 8% financial institutions, and 2% utilities); and other bonds, including U.S. dollar bonds issued by foreign countries (1%) and municipal bonds (less than 1%). This broad exposure to the entire investment-grade bond market further reduces this ETF's risk profile. Those who have invested for a while know that there are always trade-offs. In the case of AGG, the trade-off is that the bond ETF's very low-risk profile comes with lower return potential. For the most part, the interest income paid by its bond holdings makes up its entire return. Since its inception in 2003, AGG has delivered an average annual return of only 3.1%. It would have grown a $1,000 investment into over $1,800 at that rate. That assumes an investor reinvested the interest income paid by the ETF into buying more shares. However, interest rates are higher today than they've been throughout much of this ETF's history. As a result, its current bond portfolio has an average yield to maturity of almost 4.8% (just below the historical average bond return of 5% over the last century). The fund could turn a $1,000 investment into more than $4,200 in about 30 years at that higher return rate. The caveat is that while interest rates are currently higher, they might not be as high in the future. On the other hand, interest rates could also stabilize at an even higher level, enabling investors to generate even more income from this fund. Adding bonds to your portfolio can be a wise idea. While bonds have a lower return profile, they can also help significantly reduce the volatility of your portfolio. Here's a look at how adding a bond fund like AGG can help reduce risk without significantly sacrificing returns: Portfolio Allocation Best Annual Return Worst Annual Return Average Annual Return 100% stocks/0% bonds 54.2% -43.1% 10.5% 80% stocks/20% bonds 45.4% -34.9% 9.7% 60% stocks/40% bonds 36.7% -26.6% 8.8% 50% stocks/50% bonds 32.3% -22.5% 8.2% 40% stocks/60% bonds 27.9% -18.4% 7.7% 20% stocks/80% bonds 29.8% -14.4% 6.4% 0% stocks/80% bonds 32.6% -13.1% 5% Data source: Vanguard. NOTE: Returns data from 1926 to 2024. As that chart shows, adding bonds to your portfolio (i.e., buying AGG) will lower your return potential. However, it will also help cushion the blow of a very bad year in the market. Most financial advisors recommend that investors allocate a portion of their portfolio to bonds. The traditionally recommended allocation for a balanced portfolio is 60% stocks and 40% bonds. However, younger investors might want to hold a higher percentage of their portfolio in stocks, while older investors should consider a higher allocation to bonds. One good rule of thumb is that you should allocate your age to bonds (e.g., if you're 25, then you should consider having a 25% allocation to bonds). Buying an ETF like AGG isn't about maximizing the value of your investment. Instead, you'd invest $1,000 into AGG to help lower the risk profile of your portfolio. Investing $1,000 into AGG won't grow it into a huge future windfall like a similar investment in a stock ETF might achieve. However, it should produce steady income while helping lower the risk profile of your entire portfolio. For many investors, that would enable them to still reach their financial goals while potentially having fewer sleepless nights worrying about stock market volatility. Before you buy stock in iShares Trust - iShares Core U.s. Aggregate Bond ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and iShares Trust - iShares Core U.s. Aggregate Bond ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $658,297!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $883,386!* Now, it's worth noting Stock Advisor's total average return is 992% — a market-crushing outperformance compared to 172% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 9, 2025 Matt DiLallo has positions in Vanguard Total Bond Market ETF and iShares Trust - iShares Core U.s. Aggregate Bond ETF. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy. $1,000 in AGG Could Turn Into $4,200 was originally published by The Motley Fool
