4 No-Brainer Dividend ETFs to Build Lasting Passive Income

Owning something with a yield of 7% or more may seem attractive. But it won’t matter much if that yield isn’t sustainable and the dividends can’t grow over time.

Take Campbell’s (CPB +0.29%) for example. The stock’s yield rose to 7% recently before the company cut its dividend by 36% earlier this month. Yields don’t matter if the company doesn’t have the financial strength to support its payout.

The better strategy is to own durable businesses with healthy balance sheets that generate strong cash flows. This gives the company greater ability to continue paying dividends and increase them over time. That can give investors something very valuable for their portfolios: a long-lasting passive income stream that grows wealth over time.

These four dividend ETFs offer different ways to target these companies:

1. Schwab U.S. Dividend Equity ETF

The Schwab U.S. Dividend Equity ETF (SCHD +0.38%) is probably the best place to start because it combines the three elements you ideally want to see in a fund: dividend growth, dividend quality, and high yield. It does perhaps the best job of identifying the “best of the best” dividend stocks.

The Schwab U.S. Dividend Equity ETF‘s 3.2% yield is easily the highest on this list, which makes it ideal for investors looking to improve income without drifting too far out on the risk spectrum. Healthcare and consumer staples each account for 20% of the portfolio, while tech is just 9%. That gives the fund a distinct defensive tilt that tends to do better when investors need some protection from volatility.

2. Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF (VIG +0.71%) targets large-cap companies that have grown their dividends for at least 10 straight years. There’s no specific provision for balance sheet quality in the selection process, but the long-term commitment to consistently raising the dividend usually ensures it.

The Vanguard Dividend Appreciation ETF has more of a growth tilt than many of its dividend ETF peers. Because it market-cap-weights any stock that qualifies, you end up with Broadcom, Apple, and Microsoft as the top three holdings. The current 1.4% yield won’t get many income seekers excited. But its overall risk/reward profile makes it ideal for pairing with a more traditional dividend income strategy.

3. WisdomTree U.S. Quality Dividend Growth ETF

The WisdomTree U.S. Quality Dividend Growth ETF (DGRW +0.67%) is the fund you’d want to consider if you want to emphasize growth potential in the dividend-stock universe. Its selection process evaluates earnings and sales growth, along with return on equity (ROE) and return on assets (ROA), to help ensure sustainable growth.

The WisdomTree U.S. Quality Dividend Growth ETF has built a strong track record, but it’s been driven by a heavy 33% weighting in the tech sector. That means it will probably be an above-average performer in a bull market, but is likely to lag if the market corrects. Over the long term, this is a solid dividend ETF with the potential to deliver strong total returns even if the current 1.2% yield is minimal to say the least.

4. ProShares S&P 500 Dividend Aristocrats ETF

The ProShares S&P 500 Dividend Aristocrats ETF (NOBL +0.27%) is one of the purest dividend growth ETFs out there. It includes only those companies with at least 25 straight years of dividend growth (Dividend Aristocrat® is a registered trademark of Standard & Poor’s Financial Services LLC). It produces a portfolio that generally lacks on growth, but has one of the most durable and sustainable passive income streams you’ll find.

Companies with this type of dividend growth history that the ProShares S&P 500 Dividend Aristocrats ETF favor usually aren’t the ones with the fastest growth profiles. That’s why you find almost no exposure to sectors like tech and consumer discretionary. Its risk/reward profile is ideal for someone who wants a conservative entry into dividend equities and emphasizes durability and sustainability above all else.