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Dividend ETFs: A Consistent Income Stream

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  Published in Stocks and Investing on Thursday, January 22nd 2026 at 20:17 GMT by The Motley Fool
      Locale: UNITED STATES

The Appeal of Dividend-Focused ETFs

The core appeal of dividend ETFs lies in their ability to deliver a regular income stream while offering a degree of diversification typically difficult to achieve with individual stock picking. In an environment where interest rates remain relatively low and economic uncertainty looms, the allure of consistent dividend payouts is undeniable. These ETFs provide investors with a relatively passive way to tap into the dividends of numerous companies, reducing the inherent risk associated with concentrating investments in a few individual stocks. However, it's vital to remember that dividend payments aren't guaranteed and can be impacted by company performance and broader economic trends.

iShares Select Dividend ETF (RPV): A Focused Approach

The iShares Select Dividend ETF (RPV) aims to mirror the performance of the Morningstar(R) U.S. Select Dividend Index. This index is comprised of U.S. companies that meet specific criteria for dividend payment, including a history of dividend payments and certain financial health metrics. As of January 22, 2026, RPV boasts a yield of approximately 3.87%, making it a compelling option for income-seeking investors. However, investors should note its expense ratio of 0.39%, which is slightly higher than the Vanguard alternative, representing a small portion of the yield that goes toward fund management.

RPV's strength lies in its focus on companies with a proven track record of consistent dividend payments. This selectivity can provide a measure of stability in uncertain market conditions. However, this focus might also mean it misses out on potentially faster-growing companies that may not yet be paying dividends, or that have more volatile dividend histories. Furthermore, the index methodology dictates the selection process, and investors should review the holdings periodically to understand the fund's exposure.

Vanguard High Dividend Yield ETF (VYM): Broad Exposure at a Lower Cost

The Vanguard High Dividend Yield ETF (VYM) takes a slightly different approach. It seeks to replicate the FTSE High Dividend Yield Index, which selects companies based primarily on dividend yield. As of January 22, 2026, VYM offers a yield of roughly 3.38%. The most significant advantage of VYM is its significantly lower expense ratio of 0.06%. This cost efficiency allows investors to retain a larger share of their dividend income.

VYM's broader index construction means it holds a larger number of companies compared to RPV, further enhancing diversification. However, this broader scope also means it might include companies with potentially less sustainable dividend payouts, as the primary selection criteria is yield rather than a long-standing dividend history. While the lower expense ratio is a substantial benefit, investors should consider the potential for slightly higher volatility compared to RPV.

Key Considerations for Investors

Before incorporating either RPV or VYM into your portfolio, several factors warrant careful consideration:

• Risk Tolerance: Dividend ETFs are not risk-free. While dividends provide a buffer during market downturns, the underlying stock prices can still fluctuate significantly. Investors with a lower risk tolerance may wish to allocate a smaller portion of their portfolio to these ETFs.
• Economic Outlook: As mentioned, a slowing economy often favors dividend-paying stocks. However, unexpected economic shifts can negatively impact dividend payouts. Continuous monitoring of the economic climate is crucial.
• Tax Implications: Dividend income is generally taxable, and investors should be aware of the potential tax implications of investing in dividend ETFs.
• Expense Ratios: While the difference between 0.39% and 0.06% might seem small, it can compound over time and impact overall returns. The choice should be based on a consideration of portfolio size and investment timeline.

Conclusion

Both the iShares Select Dividend ETF (RPV) and the Vanguard High Dividend Yield ETF (VYM) offer viable solutions for income-focused investors in 2026. RPV provides a more selective approach with a slightly higher yield, while VYM offers broader diversification and significantly lower costs. Ultimately, the best choice depends on individual investment goals, risk tolerance, and a thorough understanding of each ETF's methodology and holdings. As always, consulting with a qualified financial advisor is highly recommended before making any investment decisions.

Disclaimer: The author has no position in any of the securities mentioned. This article is for informational purposes only and should not be considered investment advice. Always consult with a financial advisor before making investment decisions.