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👉️ Dividend ETFs vs. Individual Stocks: A Young Investor’s Dilemma 🤔 

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Oil Prices Are On The Rise 📈 

Iran’s retaliation on Israel’s military strikes on June 13th triggered global market turmoil, with fears of an all out war in the Middle East which could disrupt oil supplies and further fuel inflation.

Brent crude and West Texas oil prices surged by 7% to over $74 and nearly $73/barrel, marking the years largest daily gain.

The S&P 500 fell 1.1%, marking its worst day in a month, ending a two-week gain streak with a 0.4% weekly loss. Despite that, energy and defence stocks saw gains.

As with any global conflict, the price of Gold rose, and the 10-year U.S. Treasury yield rose as investors delayed their expectations for rate cuts this year.

Iran is a major oil producer exported mainly to China and controls the Strait of Hormuz whereby 1/3 of the global seaborne oil passes.

If this were to get blocked, it could cause oil prices to 2x.

I’m not saying that oil is a good investment right now, but it may be worth looking into should this conflict continue.

Dividend ETFs vs. Individual Stocks: A Young Investor’s Dilemma

As a young investor who might be eyeing passive income, you’ve likely wondered the following question:

Should I invest in dividend ETFs or hand-pick individual dividend stocks? 

Both paths offer unique advantages and challenges along your investing journey.

Let’s break it down to help you decide which one suits you best.

Dividend ETFs: Diversified Simplicity

Dividend exchange-traded funds (ETFs) pool multiple dividend-paying stocks into a single investment, offering instant diversification.

Think of a salad…

When you buy the salad, you might get cucumbers, tomatoes, olives, feta cheese, and maybe some chicken. You’re buying the salad, but inside is everything that makes up said salad.

For young investors, this is a very attractive option.

Diversified portfolios reduce risk by spreading your exposure across multiple industries.

ETFs like the Vanguard Dividend Appreciation ETF $VIG ( ▼ 1.08% ) or Schwab U.S. Dividend Equity ETF $SCHD ( ▼ 0.44% ) focus on companies with consistent dividend growth, providing stability AND diversification.

The best of both worlds.

Here are the Pros and Cons.

Pros:

• Low Effort: ETFs require minimal research compared to analyzing individual companies. All you have to do is buy, hold, and let the fund managers handle the rest of the work. Easy and simple.

• Lower Risk: Diversification mitigates the impact of a single company’s failure. Dividend ETFs are often less volatile than individual stocks so you can sleep well at night.

• Cost-Effective: Many ETFs boast low expense ratios, some as low as 0.02%, keeping fees minimal and allowing you to keep more money in your pockets.

Cons:

• Limited Control: You can’t pick specific companies. As a result, the ETF may include underperformers that you otherwise would never hold as an individual stock.

• Lower Yield Potential: Some ETFs blend high and low yielding stocks, often resulting in moderate dividends than you might get from an individual stock. For example SCHD yields ~3.8% as of June 10, 2025, but there are plenty of individual companies paying much higher yields. A friendly reminder: never invest in a company based on yield alone.

• Fees: Even small expense ratios chip away at returns over decades. Just 0.02% over a period of 30 years can be quite significant, depending on how much you have invested.

Individual Dividend Stocks: High Effort But Higher Reward

Hand-picking dividend stocks means selecting companies like Target $TGT ( ▼ 3.95% ) or Realty Income $O ( ▼ 0.55% ) for their reliable payouts. These stocks are part of whats called the “Dividend Aristocrats” list.

The stock picking approach appeals to investors seeking higher yields and more control. They come with their share of Pros and Cons as well.

Pros:

• Higher Yields: Stocks like Chevron $CVX ( ▲ 0.65% ) can offer yields near 5%, outpacing many dividend focused ETFs as mentioned above.

• Customization: You can tailor your portfolio to align with your goals, avoiding companies you may not want to invest in. You can also buy stocks with staggered dividend payment months so you can ensure you’re earning consistent cash flow.

• Growth Potential: Dividend aristocrats (companies with 25+ years of dividend increases) typically deliver strong capital appreciation alongside the cash flow they provide, which is a great wealth building combo.

Cons:

• Higher Risk: If a company in your portfolio cuts their dividend or files for bankruptcy, it will hit you harder than if it were to happen in an ETF. For example, one of the most notable and recent dividend cuts was BCE Inc. $BCE ( ▼ 0.65% ) who cut its dividend from $3.99/share to $1.75/share on an annualized basis, marking the first time the company has cut its dividend in 17 years. This could be devastating as an investor if the bulk of your cash flow comes from this stock.

• Time-Intensive: Researching financial statements, payout ratios, and industry trends can take a lot of time, especially if you own a handful of individual stocks.

• Concentration Risk: Owning just a few stocks increases your vulnerability to sector-specific downturns.

Which Path Suits You?

If you’re a younger investor, the choice depends on time, risk tolerance, and your own personal goals.

If you’re busy and risk-averse, dividend ETFs offer a hands-off way to build passive income with lower volatility, despite the management fee you’ll pay to be “hands-off”.

A $10,000 investment in SCHD at 3.8% will pay you $380 annually, money that can then be reinvested for more growth.

On the flip side, if you’re willing to research and accept the higher risk, individual stocks can deliver larger payouts and more personalization.

A $10,000 portfolio of higher-yielding stocks at 5% will pay you $500 yearly, but requires more work than the ETF. There’s a trade off for every choice.

My Pro Tip:

Blend both strategies! Why be a one-trick pony?

Use ETFs as your foundation and then allocate a smaller portion to carefully chosen stocks for higher yield and growth.

Always make sure you’re checking payout ratios (below 60% is ideal) to ensure long term dividend sustainability.

Need more help analyzing dividend stocks? See below.

Final Thoughts

Whether you choose dividend ETFs or individual stocks, start small, reinvest your dividends, and stay consistent.

Passive income builds over time and your 20s-30s are the perfect time to start the snowball.

See you in the next one!

Alex (The Dividend Dominator)
Founder and CEO of Dividend Domination Inc.
Follow me on Twitter, Instagram and LinkedIn

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