Exchange-traded funds (ETFs) are baskets of securities sold in shares, just like stocks. When you purchase an ETF, however, you purchase partial shares of dozens to hundreds of stocks.
There are different types of ETFs. Dividend ETFs , in particular, select securities that pay dividends to investors. These ETFs might include domestic and/or foreign common and preferred stocks, as well as other securities like real estate investment trusts (REITs). Many dividend ETFs are managed passively to reduce administration fees and boost returns—typically for risk-averse investors—but they may be classified as either high- or low-yield. Meanwhile, dividend aristocrat ETFs raise dividend payments for 25 consecutive years or more.
Dividend ETFs pay out four or 12 times per year, respectively. This can supplement investors’ incomes, but the risk lies in purchasing a predetermined basket of securities.