Key Points
Dividend stocks can deliver high yields for investors while allowing for capital growth.
The iShares Core High Dividend Yield ETF (HDV) looks for high-quality companies with long-term dividend histories.
These screening criteria allow the fund to pay an above-average yield that's sustainable over time.
Dividend ETFs are great for delivering steady, predictable income to investors. The iShares Core High Dividend ETF (NYSEMKT: HDV) is an ideal choice for this. It targets higher-yielding U.S. stocks but adds a pair of quality screens to ensure the above-average yields are sustainable.
The fund currently yields 3.1%, about triple what the Vanguard S&P 500 ETF pays today. That kind of yield from a diversified portfolio of high-quality stocks is what can help income seekers build a substantial passive income stream.
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How the iShares Core High Dividend ETF can generate $1,000 a month in passive income
The iShares Core High Dividend ETF tracks the Morningstar Dividend Yield Focus Index, which screens for U.S. companies with strong balance sheets and sustained dividend payouts. It targets 75 stocks meeting the selection criteria and weights them by total dividends paid.
This ETF pays its dividends quarterly, not monthly. So this is more about framing annual dividends in monthly terms. To earn the equivalent of $1,000 a month, you need to earn $12,000 a year. With a yield of 3.1%, the calculation is fairly straightforward: $12,000 divided by 0.031 = $387,100. At a current share price of $29.14, that means someone would need to buy roughly 13,285 shares of the fund.
The fund's yield, however, can fluctuate. Over the past decade, this yield has ranged from 2.8% to over 4%. As yield changes over time, the math can change, resulting in more or less investment needed to achieve the $1,000 dividend income goal.
Key takeaways for investors
If the rotation out of tech stocks that has occurred throughout July continues, the iShares Core High Dividend Yield ETF is well positioned to take advantage. It currently has a combined 68% of the fund's assets invested in consumer staples, energy, and healthcare stocks. These are three of the best-performing sectors during the current rotation.
That won't always be the case, of course, but investors should be able to count on this fund being filled with high-quality companies that generate substantial cash and demonstrate a strong ability to continue paying and growing their dividends over time. That's an ETF that can fit in almost any portfolio.
If the $387,100 figure sounds daunting, remember that there are multiple ways to get there. Starting with a smaller initial investment, making periodic monthly payments, and reinvesting dividends can also work over time.
High-yield dividend equity ETFs can be a great way to generate a consistent, predictable income stream. The iShares Core High Dividend Yield ETF is a solid fund to use.
David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.