I advised 453 millionaires during my 7 years in Wealth Management.
Here’s their secret to successful dividend investing:
They didn’t chase 8-10% yields…
They didn’t build a portfolio of 40+ positions…
And they didn’t panic sell when markets dropped.
Just high-quality dividend ETFs, automatic reinvestment, and patience.
But here’s the problem most beginners face:
There are 6,000+ dividend stocks and ETFs to choose from.
So if I had to start over today, I’d focus on just 3 ETFs.
Let me show you exactly which ones and why.
What dividends actually do
When you invest, you make money in two ways:
- Your shares grow in value (capital growth)
- You get paid cash along the way (dividends)
That’s why dividends are so powerful.
You’re not just waiting for prices to rise someday.
You’re being paid while you hold.
The expensive mistake most dividend investors make
Most investors lose money because they chase yield instead of quality.
Here’s how the dividend trap works:
A stock or fund advertises an 8–10% dividend yield…
It looks amazing on paper…
Beginners pile in…
Then one of two things happens:
- The business weakens, the dividend gets cut, and the price falls, so you lose income and principal
- Or the investment stagnates for years while your money could have been compounding elsewhere
A bad 9% dividend that gets cut is worse than a stable 4–5% dividend that compounds for decades.
My rule is simple:
I don’t buy dividends because they are high. I buy them because they are reliable.
That means I look for investments that are:
- Hard to disrupt
- Essential to daily life
- Proven through recessions
- Cash-flow rich
- Consistent dividend payers
Yield is a bonus. Not the strategy.
Why dividends are so powerful
I love broad market ETFs for growth.
But dividends are my sleep-well-at-night layer of investing.
Here’s why they matter:
- They compound quietly in the background
- They can eventually replace part of your paycheck
- They make bear markets emotionally easier to sit through
- They send real cash to your account typically every month or quarter
Over time, dividends turn your portfolio into a mini cash machine.
My 3 dividend ETF framework
Before we get into the three ETFs, one thing to know:
If you’re new, dividend ETFs are usually better than picking individual stocks.
They spread your risk across many companies, require less homework, and are easier to hold during market swings.
Instead of owning dozens of stocks, I like having exposure to three different styles of dividend investing:
- A quality U.S. dividend core
- A broad U.S. dividend backbone
- A global dividend layer
Together, they give you income, diversification, and stability without complexity.
Here are the 3 ETFs I’d start with:
Example ETF #1: SCHD
This is the cleanest “set it and forget it” dividend fund in the market.
If someone told me, “I only want one dividend ETF forever,” SCHD is where I would point them first.
SCHD is designed to filter for companies that are:
- Consistently profitable
- Financially strong
- Reliable dividend payers
- Not just the highest yield, but the best combination of yield + quality
In plain English: SCHD is built to pay you steadily without taking reckless risk.
Key stats:
- Dividend Yield: 3.82%
- Expense ratio: 0.06%
- Assets under management (AUM): ~$83 billion
- Number of holdings: 101
What’s inside: Coca-Cola, PepsiCo, Chevron, Home Depot, AbbVie, Verizon, and similar value/dividend stalwarts (often financials, consumer staples, energy, healthcare, and industrials).
Example ETF #2: VYM
VYM is your broad engine of dividend income.
This fund doesn’t try to be fancy.
It simply owns large, profitable U.S. companies that already pay dividends.
VYM is:
- Broad
- Durable
- Crisis-tested
It has lived through major downturns and kept chugging along.
That matters far more than chasing today’s hottest yield.
Key stats:
- Dividend Yield: 2.34%
- Expense ratio: 0.04%
- Assets under management (AUM): ~$72 billion
- Number of holdings: ~563
What’s inside: Financials, energy, consumer staples, and industrials (e.g., top holdings often include JPMorgan, Broadcom, Procter & Gamble, ExxonMobil, etc.), with broader diversification than SCHD.
What makes VYM different from SCHD:
While SCHD selects companies based on financial quality screens, VYM simply owns a wide slice of the biggest dividend payers in America.
So with VYM you get:
- More companies
- More industries
- More built-in diversification
Less “smart filter,” more “own the whole dividend market.”
Example ETF #3: VYMI
No country dominates forever.
That’s why VYMI gives you dividend income from:
- Asia
- Europe
- Developed markets
- Select emerging markets
That means your income stream is not tied to one economy, one political system, or one market cycle.
Key stats:
- Dividend Yield: 3.34%
- Expense ratio: 0.07%
- Assets under management (AUM): ~$17 billion
- Number of holdings: ~1,533
What’s inside: HSBC, Novartis, Toyota, Nestlé, Shell, Roche, and banks/utilities/energy firms from Europe, Asia, Australia, Canada, etc. Heavy in financials, energy, and consumer sectors globally.
How VYMI fits:
- U.S. markets soar? You’re covered with SCHD/VYM
- International markets outperform? VYMI helps you benefit
It reduces regret risk and concentration risk.
How I’d build my dividend portfolio
Instead of trying to invest in all three on day one, here’s what I’d actually do:
Months 0–6:
Start with just SCHD.
Invest monthly.
Turn on dividend reinvestment (DRIP).
Get used to volatility. Build the habit.
Months 6–12:
Once you’re comfortable, split new contributions between SCHD and VYM.
Turn on DRIP for VYM as well.
Month 12+:
After a year, consider adding VYMI and turning on DRIP.
Now your portfolio becomes truly diversified: U.S. quality + U.S. broad + international dividends.
Tax optimization: What accounts to invest in
This is the part most people ignore until it costs them real money.
Dividends feel passive, but in a taxable brokerage account they can trigger taxes every year, even if you reinvest them.
When you have the option, dividend investments are best held in tax-advantaged accounts.
Practical examples:
- Roth IRA: dividends reinvest tax-free, and qualified withdrawals later are tax-free
- 401(k) or Traditional IRA: dividends grow tax-deferred during your accumulation years
- Taxable brokerage: dividends are still fine here, but expect some tax drag over time
This is not a reason to avoid dividends.
It’s a reason to be intentional about where you hold them.
What this portfolio could do for you
You could realistically aim for roughly $150–$250 per month in dividends, depending on how much you invest.
For example:
- $10,000 invested → about $400/year
- $50,000 invested → about $2,000/year
- $100,000 invested → about $4,000/year
That’s money hitting your account while you sleep.
How I’d allocate $10,000
If I were starting from scratch with $10,000, I’d lean toward something like:
- 40% SCHD
- 35% VYM
- 25% VYMI
Why this mix works:
- Quality
- Stability
- Income
- Global diversification
But again: you don’t need this on day one.
I would start with SCHD. And add the others later.
A simple way to start (no overwhelm)
- Open an account with M1 Finance
- Decide what account to invest in (e.g., Roth IRA)
- Determine how much you can invest
- Consider starting with SCHD and turning on DRIP
- Set up an automatic investing schedule
- Check quarterly, not daily
- Consider adding VYM, then VYMI over time (while turning on DRIP)
That’s it.
Set it and forget it.
And start building generational wealth.
The bottom line
Dividends won’t make you rich overnight.
But they can quietly build a second paycheck in the background, one that grows year after year.
You don’t need 20 positions. You don’t even need three ETFs on day one.
You just need one good ETF, consistency, and patience.
Start today. Even if it’s small.
Your bank account will thank you later,
Fiona
The Millennial Money Woman
