The ETF to Buy for a Lifetime of Passive Income

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If you’re in the market for a low-maintenance income generator, an exchange-traded fund (ETF) is a clear contender. Like a diamond in the rough, the right one can shine forever, but not every ETF sparkles the same.

Some dividend ETFs show promise. Others fizzle out like cheap bourbon in a smoky dive. If you’re after a solid pick to hold onto until the end of days, one ETF has the grit to stand out from the crowd.

And no, it’s not the usual suspect you’re thinking of.

Yield Isn’t Everything in This Game

Familiar with dividend ETFs? The Schwab U.S. Dividend Equity ETF (SCHD) struts around with a trailing yield of 3.9%. Impressive? Sure. But in this territory, size isn’t everything. It strangles the competition, even besting the current 2.5% yield from that behemoth, the Vanguard High Dividend Yield ETF (VYM).

But hold your horses. Investing in a fund just because its yield tickled your fancy is a rookie’s mistake. You’ve got to ask yourself the real questions: Is that dividend sustainable? Does it have a history of keeping pace with inflation, or does it gasp like a fish on dry land? Is the capital appreciation doing more than just existing? Start peeling back the layers, and you’ll find that the Schwab fund doesn’t glow. It has skulked in the shadows of the S&P 500 (^GSPC) and most of its rivals for the better part of 2023, mostly due to its disdain for tech stocks that have jumped on the AI bandwagon like moths to a flame.

That’s not necessarily a coffin nail. Sooner or later, tech stocks may find themselves in troubled waters, and the Dow Jones U.S. Dividend 100 may bask in the limelight once again. But the persistent lackluster performance of the Schwab U.S. Dividend Equity ETF tells me its brightest days are like ghosts wandering the earth-hard to pin down and even harder to believe in.

The Real Catch to Hold

So, which fund should you stash in your portfolio for the long haul? For those seeking reliable income, look no further than the iShares Core Dividend Growth ETF (DGRO).

This fund’s not winning any beauty contests. With less than $35 billion in assets, it barely casts a shadow against the giants, like the overstuffed Vanguard Dividend Appreciation ETF (VIG) at over $100 billion. Even the Schwab fund gets more attention with about $70 billion in management. Sure, you can find yields fancier than DGRO’s modest sub-2.2%. But don’t let its quiet stature fool you.

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The iShares Core Dividend Growth ETF has enough muscle where it matters. It’s built to last, like an old jazz tune that never goes out of style.

This fund dances to the tune of the Morningstar US Dividend Growth Index. It’s picky about its partners, only inviting companies with a five-year track record of raising dividends to the party. It also gives the cold shoulder to the highest-yielding 10% of stocks, knowing that in this business, sometimes a high yield screams trouble lurking just around the corner. Companies that hand out more than 75% of their earnings as dividends? Out they go.

What sets the Morningstar Index apart is how it spreads its chips. Each position is capped at 3% of the total portfolio, but it’s weighted based on the value of dividend payouts-meaning the big boys pack a punch. Currently, that includes Johnson & Johnson, Apple, JPMorgan Chase, Microsoft, and ExxonMobil. Quite the eclectic crew, though the other 392 stocks in its arsenal don’t just sit in the corner waiting for a handout.

True, many of these players don’t flaunt hefty dividend yields. Yet, plenty do, and those that don’t provide stock price appreciation that sings a siren’s song. It’s this careful balance that makes the fund such a consistent player in the game.

The irony? Despite holding a cadre of lower-yielding stocks that aren’t exactly swimming in dividends, the fund’s quarterly payout has nearly tripled over the last decade. Finding an ETF that also offers capital appreciation alongside consistent income isn’t just rare-it’s practically a miracle.

Compromise is an Overrated Vice

Don’t get me wrong; owning other dividend ETFs isn’t a crime. There’s a world of reasons to sit cozy with the Schwab U.S. Dividend Equity ETF at any given time, especially if you’re chasing a more immediate yield. There’s also merit in chalking up multiple income-producing ETFs to diversify your income streams.

But if you’re searching for a straightforward dividend income option, one you can buy and hold like a faithful dog from puppyhood to the grave, the iShares Core Dividend Growth ETF is a terrific, but often overlooked, gem. With DGRO, you avoid the need to sacrifice growth on the altar of reliable income-or vice versa. It’s a harmony that walks the line without falling in.

The only real drawback? DGRO won’t shower you with a massive starting yield. Most long-term investors would call that a fair trade-off in a market where fortunes are built, lost, and rebuilt on the whims of capricious economic winds. 🌧️

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2025-10-19 11:47