3 High-Dividend ETFs to Buy With $25,000 and Hold Forever | The Motley Fool (2024)

It's never been easier to invest in exchange-traded funds (ETFs). That said, with so many ETFs to choose from, it can leave some investors' heads spinning.

So, let's examine three high-dividend paying ETFs that income-seeking investors might want to consider.

Energy Select Sector SPDR Fund

Topping my list is the Energy Select Sector SPDR Fund (XLE 0.56%). This ETF is a great choice for income-seeking investors for several reasons.

First, it focuses on an industry chock-full of deep-value, high dividend-paying stocks: the energy sector. The fund's holdings are almost entirely comprised of American energy-sector companies, such as drillers, pipeline operators, refiners, etc.

Top holdings include ExxonMobil, Chevron, and EOG Resources.

Second, with the fund's expense ratio of 0.09%, investors give up very little in fees. For example, a $10,000 investment pays only $9 per year in fees. That means investors keep more of the returns generated by this fund. What's more, with a current dividend yield of 3.1%, the fund ranks above many of its ETF peers.

In addition, this ETF has a history stretching back into the last century. Over its more-than 25-year history, the fund has generated a compound annual growth rate (CAGR) of 8.4%. An initial investment of $25,000 in 1998 would be worth $191,000 today.

In short, this ETF combines solid returns and dividends with low expenses while focusing on some of the most affordable stocks on Wall Street. For income-oriented investors, what's not to love?

JPMorgan Equity Premium Income Fund

Next up is a fund with a unique value proposition. Instead of owning only dividend-paying stocks, it owns all types of stocks. Yet it generates a considerable dividend yield of 7.3%.

How does the JPMorgan Equity Premium Income Fund (JEPI 0.56%) do that? It does so through the power of stock options. Specifically, the fund employs a covered call strategywhereby the fund managers sell out-of-the-money call options against the fund's core stock holdings.

As a result, the fund generates cash from the sale of the stock options, which is then passed along to investors as dividend payments.

This way, the fund can generate income from stocks that pay little or no dividends. For example, one of the fund's top holdings is Amazon, a stock that has never paid a dividend.

Having started in 2020, the fund is still relatively new. However, with a CAGR of 12.9%, early results have been positive. An initial investment of $25,000 would have already grown to $40,000 today.

As for fees, the fund charges an expense ratio of 0.35%, which is to be expected given how the fund operates. Nevertheless, that is only $35 per year for every $10,000 invested.

So, for income-seeking investors who want to diversify away from traditional value stocks, this ETF is one to consider.

Vanguard High Dividend Yield Index ETF

Finally, there's the Vanguard High Dividend Yield Index ETF (VYM 0.92%). This index fund focuses on large-cap stocks that offer stability and high-dividend yields. With over 400 holdings, the fund offers investors a solid array of stocks.

Holdings come from numerous sectors, including consumer discretionary, energy, and industrials. Top holdings are below:

Started in 2006, the fund has a lifetime total return CAGR of 8.4%, meaning a $25,000 initial investment would have grown to $102,000 today.

The fund's 0.06% expense ratio is among the best around; investors pay only $6 per year for every $10,000 invested.

As for income, the fund boasts a current dividend yield of 2.9%. That may seem low for an income-producing ETF, but remember that this fund's selling point is the quality of its holdings. Rather than loading up on laggards with high-dividend yields, this fund is higher on the stock food chain. It owns well-run companies likely to deliver solid long-term results -- not just big dividends.