Retirees: How to Up Your Income With Dividend ETFs

You can earn high income in retirement with dividend ETFs like BMO Canadian Dividend ETF (TSX:ZDV).

| More on:
exchange traded funds

Image source: Getty Images

If you’re retired, dividend ETFs are among the best investments you can make. As a retiree, your main investment priorities are likely to be income and preservation of capital. Income will make up for the fact that you’re no longer earning employment income. Preservation of capital will make sure your nest egg remains intact.

Dividend ETFs provide you with both. Dividends provide a regular cash income stream through steady payouts. Index ETFs help with preservation of capital by reducing risk through diversification. Together, dividends and diversification make a powerful package that can steadily add to your income. In this article, I will reveal how to up your income with dividend ETFs in three easy steps.

Step one: Find the right ETF

The first step in any investment is knowing what to buy. If you’re looking for dividend income and low risk, then dividend ETFs are a good place to start. One example of such an ETF is BMO Canadian Dividend ETF (TSX:ZDV). It’s a Canadian ETF with a specific mandate to invest in stocks with high dividend yields. A quick glance at ZDV’s holdings sheet reveals that it holds a lot of banks, energy stocks, and telcos. That makes perfect sense, because those sectors typically have high yields.

When you invest in ZDV, you get about a 3.9% yield. That’s above average for the TSX Composite Index The downside is that ZDV has a 0.39% management expense ratio, which is above average. If you want to get a relatively high yield with lower fees, you could consider a true index fund like iShares S&P/TSX Capped Composite Index Fund (TSX:XIC). Such funds often have relatively high yields but much lower fees than ZDV. At today’s prices, XIC yields about 2.5%. That’s actually pretty good for a broad market index fund, and it is delivered in a very cheap package.

Step two: Invest

The next step after choosing what to invest in is to put your money to work. Open a brokerage account and buy the shares in the ETFs you want. Do not limit yourself to just one ETF. There are many good choices out there, and it doesn’t hurt to have a bit of everything. Both of the funds I mentioned above are pretty good — why pick just one? You could easily make decent money by investing in both of them.

Step three: Hold long term

The third and final step after you have bought your investments is to hold them for the long haul. The whole point of dividend investing is to simply sit on your stocks/ETFs and collect dividends as they are paid. To actively trade such stocks defeats the purpose completely. Also, active trading is generally a losing strategy, whether you’re buying dividend stocks or growth stocks. The urge to time the market is strong, but it leads to poor performance. So, just buy dividends and sit on them. As a retiree, you’ll be hard pressed to find a strategy better suited to your needs.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

Growth from coins
Stocks for Beginners

3 Incredibly Cheap Canadian Growth Stocks to Buy Today

Canadian growth stocks are cheaper than they have been in a long time. Here are three stocks that are incredible…

Read more »

Stock analysts were once excited about construction company Aecon as an investment.

Bull or Bear: Why Analysts Changed Their Tune on Aecon Stock

Analysts had been champing at the bit for the construction company, but the tides have turned.

Read more »

Specialty Brands faces higher raw materials costs.
Dividend Stocks

What’s Next for Premium Brands Stock?

Shares of the specialty food production and distribution company have fallen about 25% since last October.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

2 Interesting Buys in Any Market

Here are two intriguing buys in any market climate that offer defensive appeal as well as growth and income earning…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Should You Buy Bank Stocks Now?

Canadian bank stocks are getting cheap. Is this the right time to buy?

Read more »

stock data
Stocks for Beginners

2 Reliable Stocks Beginners Can Buy Amid the Market Selloff

As the broader market turmoil continues, new investors can buy these two reliable dividend stocks to get good returns on…

Read more »

Biotech stocks can be good yet risky investments.

Is Bellus Health Stock Still a Buy After 30% Earnings Jump?

The biotech continues to make progress on obtaining FDA approval for its chronic-cough therapy.

Read more »

Dividend Stocks

TFSA Investors: 3 TSX Stocks for Tax-Free Passive Income

These Canadian corporations have strong visibility over future earnings and dividend payouts.

Read more »