These 2 Dividend ETFs Are a Retiree's Best Friend

An investment strategy must always factor age into the equation. Younger investors are trying to be more aggressive and build savings because they have the ability to hold stocks for 20, 30, or even 40 years. But once people have retired, their goals are often more focused on preserving their savings and keeping up with inflation.

Dividend exchange-traded funds (ETFs) can be a winning strategy for retirees because they produce income each year and can provide diversification. These two dividend ETFs are a retiree's best friend.

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Schwab U.S. Dividend Equity ETF

The goal of the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is to track the performance of the Dow Jones U.S. Dividend 100 Index. The ETF's expense ratio is 0.06% and it has generated a return of 33% over the past five years. Sure, that trails the broader market, but the goal of SCHD is to generate reliable, consistent income each year. As of Sept. 30, the ETF's trailing-12-month dividend yield was a strong nearly 3.8%, and the fund has paid dividends for at least a decade, according to its distribution history.

The fund's portfolio consists of many large-cap names that have been around for decades and have stood the test of time. Here are the 10 largest stocks in the fund and their respective weighting:

• Amgen -- 4.82%
• Merck -- 4.37%
• AbbVie -- 4.30%
• Cisco Systems -- 4.29%
• Coca-Cola -- 4.20%
• Bristol Myers Squibb -- 4.03%
• Chevron -- 4.00%
• PepsiCo -- 3.95%
• ConocoPhillips -- 3.87%
• Lockheed Martin -- 3.82%

As you can see, these stocks are in a range of different sectors, providing solid diversification for the ETF. Companies like Coca-Cola and Pepsi, as well as healthcare names like AbbVie and Merck, are defensive stocks in times of market uncertainty. The large oil and gas producer Chevron offers a unique diversifier if oil prices were to suddenly rise or fall, and Cisco, while not necessarily considered one of the elite artificial intelligence stocks, provides tech exposure.

Vanguard Intermediate-Term Bond ETF

As people get older, they will likely want to have more of their portfolio in bonds, as they look to be less aggressive with their savings and preserve what they have accumulated throughout their careers to carry them through retirement.

The Vanguard Intermediate-Term Bond ETF (NASDAQMUTFUND: VBIIX) fits into this strategy by seeking to track the Bloomberg U.S. 5-10 Year Government/Credit Float Adjusted Index. Basically, the ETF carries investment-grade corporate and international dollar-denominated bonds with an average maturity between five and 10 years. The expense ratio is a mere 0.03%.

Now, the ETF has generated a 16% loss over the past five years, primarily because of soaring interest rates, which make previously issued bonds issued at lower rates yield less than what's available in the market. However, the fund also has paid dividends since 2007 and currently has trailing-12-month dividend yield of roughly 3.9%, so investors who generated that yield over the past five years are still doing all right.

Additionally, with interest rates more steady, the ETF should be more stable moving forward and is actually roughly flat over the past three-plus years. Over half the fund is in U.S. government bonds, while another 20% is in corporate BBB bonds, which is the last tier of investment grade, as rated by S&P Global or Fitch. Another 17% of the bonds carry an A rating, which is a higher form of investment grade than BBB.

Aside from U.S. Treasury and agency bonds, the main companies these bonds are being issued by fall in the finance and industrials sectors, which are fairly steady industries. Overall, while bonds always carry some interest rate risk, this is a bond ETF generating a strong yield in a safe manner.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Amgen, Bristol Myers Squibb, Chevron, Cisco Systems, and Merck. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.