Investing in the stock market may not seem like a great idea these days given how expensive many stocks are and the uncertainty around the economy. But even if individual stocks don’t look terribly tempting to you, one option to consider may be some exchange-traded funds (ETFs). They can provide a lot of diversification, and you can minimize your exposure to any one particular stock.
A couple of ETFs that may be ideal for investors who want safety and dividends are the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) and the Vanguard Real Estate Index Fund ETF (NYSEMKT: VNQ). These funds have yields higher than the S&P 500 average of 1.2%, and they hold positions in many blue chip businesses. Here’s a closer look at both of them.
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SCHD total return level; data by YCharts.
The Schwab U.S. Dividend Equity ETF focuses on stocks that are strong financially and pay dividends. For investors, this is important because just targeting any dividend stocks may not be a safe strategy. With the Schwab fund prioritizing financial strength, that can reduce the risk that a key stock in its portfolio cuts its payout.
Five main sectors account for three-quarters of its portfolio: financials (19%), healthcare (17%), consumer staples (14%), industrials (13%), and energy (12%). What risk-averse investors might notice is that tech is not among those sectors, which can be ideal if you want to minimize your risk. Tech stocks can sometimes be incredibly volatile and overvalued.
A quick look at some of the top holdings in the Schwab ETF make it clear why this can be a fairly safe fund to invest in. AbbVie, Bristol Myers Squibb, and Coca-Cola are among its top 10 holdings, and these are excellent dividend-paying stocks. They are leading companies within their respective industries.
There are just over 100 holdings in the Schwab fund, providing investors with some good diversification. And with a fund like this, you don’t necessarily want too many stocks. You want the criteria for being in the portfolio to be at least a little restrictive, to ensure not just any dividend stocks make it in.
With a focus on quality dividend stocks, this is a solid ETF to invest in. It yields around 3.6% and charges just a minor expense ratio of 0.06%.
Real estate investment trusts (REITs) haven’t been doing particularly well in recent years amid high interest rates. But if rates continue coming down, this type of ETF can be an underrated choice. And one reason you may want to consider being patient is for its high yield, which is right around 3.9%.
The fund gives investors exposure to a wide range of REITs. The retail versions account for the largest chunk of the Vanguard portfolio at just under 14%, followed by healthcare REITs at 12%.
In addition, REITs focused on telecom, industrials, and data centers each account for around 10% of the overall portfolio. Through the ETF, investors will get exposure to just under 160 stocks, including Prologis, Realty Income, Public Storage, and many other well-known REITs.
The fund charges an expense ratio of 0.13%, a little higher than the Schwab ETF but still reasonably low. It’s also a little riskier given that its performance can depend significantly on the outlook for the real estate market, and interest rates can play a big part in that. REITs may seem like they are due for a rally, but that may not happen until the economy looks more favorable and rates come down a little more.
But even if a big rally isn’t coming for REITs, this can be another solid ETF for your portfolio. It can provide stability and generate a lot of dividend income along the way.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Bristol Myers Squibb, Prologis, Realty Income, and Vanguard Real Estate ETF. The Motley Fool recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy.
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