A stock market correction occurs when a major index falls 10% off its highs. The S&P 500 (^GSPC 2.13%) hit that level Thursday, falling almost 1.4% to end the day 10.1% below its all-time high set on Feb. 19. It joined the Nasdaq Composite (^IXIC 2.61%), which was 14.2% below its Dec. 16 high.
Investors understandably don't like corrections, but they aren't the end of the world. In fact, they present good opportunities for investors to scoop up shares of stocks and exchange-traded funds (ETFs) that are much cheaper than before.
Corrections are also a good time to lean on dividend stocks because they provide guaranteed income regardless of stock price movements. If that sounds good to you, here are two dividend ETFs worth considering: The Vanguard High Dividend Yield ETF (VYM 1.51%) and the Vanguard Dividend Appreciation ETF (VIG 1.44%).
1. The Vanguard High Dividend Yield ETF
The Vanguard High Dividend Yield ETF focuses on large-cap stocks that pay above-average dividends. Its current dividend yield is around 2.6%, roughly double the current S&P 500 index average and just a little less than its three-year average.
Unlike individual stocks, where the quarterly dividend is preset, the dividend payout from this ETF fluctuates because it's paying out from all of its holdings. In 2024, the ETF paid out four dividend payments of $0.96, $0.85, $1.02, and $0.65 (all rounded to the nearest penny). This averages out to around $0.87 per share.
A plus of this ETF is that it is relatively diversified. Because of the dividend focus, close to a quarter of the ETF is financial stocks, but many other sectors hold their own weight:
- Financials: 23.4%
- Industrials: 12.2%
- Health Care: 11.1%
- Technology: 10.9%
- Consumer Discretionary: 10.5%
- Consumer Staples: 10%
- Energy: 9.1%
- Utilities: 6.9%
- Telecommunications: 4%
- Basic Materials: 1.9%
Over the past five years, the ETF has averaged close to 16.6% annual total returns if you include dividends. I wouldn't expect that trend to continue long-term, but it shows what the ETF can do with its attractive dividend.
2. The Vanguard Dividend Appreciation ETF
The Vanguard Dividend Appreciation ETF is also dividend-focused, but its criteria are slightly different. It focuses on large-cap stocks with a history of increasing their annual dividend. This ETF's dividend yield isn't jaw-dropping, at around 1.7%, but the focus on appreciating dividends can pay off over time.
Similar to the Vanguard High Dividend Yield ETF (and most dividend ETFs), the dividend payout amount will vary each quarter. In 2024, the ETF paid out four dividend payments of $0.88, $0.84, $0.90, and $0.77 (all rounded to the nearest penny). This averages out to around $0.85 per share.
In just the past five years, the ETF's dividend payout has increased by close to 85%, far outpacing blue-chip Dividend Kings like Walmart, Coca-Cola, and Johnson & Johnson.
VIG Dividend data by YCharts
This ETF isn't as diversified as the Vanguard High Dividend Yield ETF, with the tech and financial sectors making up 24.9% and 22.4% of the ETF, respectively. However, it makes sense, considering many tech stocks have only recently begun paying dividends, and dividend appreciation is a selling point for many financial stocks.
ETFs that allow you to keep more of your gains for yourself
Aside from the dividend payouts, one of the best parts of both ETFs is their cheap expense ratios. The Vanguard High Dividend Yield ETF has an expense ratio of 0.06%, or $0.60 per $1,000 invested, and the Vanguard Dividend Appreciation has an expense ratio of 0.05%, or $0.50 per $1,000 invested.
Cheap expense ratios are always important for ETFs because fees can eat away at returns. They may seem small on paper, but slight differences in fees can easily add up to thousands of dollars over time.
These ETFs ensure that you keep the bulk of your gains for yourself.
