Big dividends can often be a double-edged sword. On the one hand, you have the obvious potential for significant returns from income alone; a regular stream of cash you can reinvest at your whim.
On the other hand, big dividends — even in a diversified exchange-traded fund — can be a sign of high risk. And what good is making 6 or 7 percent in dividends in a year if the fund declines plenty more than that?
These six big-dividend ETFs not only provide plentiful yield, but also are less likely to suddenly fall off a cliff.
[See: 7 Dividend Stocks to Benefit From Trump Tax Changes.]
PowerShares S&P 500 High Dividend Low Volatility Portfolio (ticker: SPHD). A 3.8 percent yield might not sound impressive, but SPHD is one of the 30 highest-yielding funds among the roughly 570 ETFs that invest in U.S. stocks. What makes SPHD stand out is its focus on stability. The SPHD’s index provider identifies the 75 highest-yielding S&P 500 stocks, then selects the 50 with the lowest volatility over the past 12 months.
That results in some holdings you’d guess, such as AT&T ( T) and FirstEnergy Corp. ( FE), but others you might not, such as digital storage real estate investment trust Iron Mountain ( IRM). SPHD also sports a low beta of just 0.7. Expenses are 0.30 percent, or $30 annually per $10,000 invested.
iShares Global Telecom ETF (IXP). The downside to telecoms is that there’s not much growth left — and the growth that does remain can only really be found in higher-risk emerging markets. The upside is telecoms have essentially become glorified utilities, throwing off substantial yields thanks to the recurring revenues of untold millions of subscribers.
The “global” part of IXP’s moniker is another way of saying “international and U.S. companies,” so nearly 40 percent of the fund is invested in companies like AT&T and Verizon Communications ( VZ). But Japan (16.4 percent) and the U.K. (8.2 percent) have significant exposure, and China Mobile ( CHL) even offers a little growth potential. Expenses are 0.47 percent, and the IXP offers a dividend yield of 4.1 percent.
iShares Global Utilities ETF (JXI). Nothing says big, safe dividends like utility stocks — and iShares’ JXI provides that and geographic diversification. Again, this is a global fund, which means you’re getting American exposure too — and a lot of it, in fact. JXI is weighted nearly 60 percent in U.S. utilities such as NextEra Energy ( NEE) and Duke Energy Corp. ( DUK), but also has healthy weightings in British utilities such as National Grid ( NGG) and Spanish firms including Iberdrola.
What’s important to note about JXI is how level it is — the fund has traded between $40 and $50 for all but a few days since 2009. Expenses are 0.47 percent, and the dividend yield is a healthy 4.3 percent.
First Trust High Income ETF (FTHI). The FTHI makes it known at the very top of the fund page that the primary goal is income, and the secondary goal is capital appreciation — which is exactly what you should expect out of a fund that uses an options strategy meant to either hedge bets or generate income. FTHI holds 161 stocks, big and small, and also writes covered calls against the Standard & Poor’s 500 index, which produces regular income that’s distributed in the form of a monthly payout.
[See: 7 Dividend Stocks to Buy That Pay More Each Year.]
The nature of this fund naturally limits its upside, but protects to the downside as well, resulting in a fairly stable, high-income holding. Expenses are a little higher at 0.85 percent, and the dividend yield is 4.4 percent.
First Trust STOXX European Select Dividend Index Fund (FDD). You can’t expect much in the way of growth from Europe anymore. What you can still get, however, is healthy yield from blue-chip European companies and hope for at least minimal growth over time.
FDD invests in European stocks — including the likes of Zurich Insurance Group and Royal Dutch Shell ( RDS.A) — that boast positive five-year dividend growth and dividend payout ratios of 60 percent or less, and rank among the top 30 in an “outperformance factor.” The result has been significant outperformance versus rivals such as SPDR S&P International Dividend ETF ( DWX) and Guggenheim S&P Global Dividend Opportunities Index ETF ( LVL). Expenses are 0.6 percent, and the dividend yield is 4.8 percent.
VanEck Vectors Preferred Securities ex-Financials ETF (PFXF). Preferred stocks, often referred to as stock-bond “hybrids,” are typically nonvoting shares that offer a fixed, usually high, dividend. They also tend to trade around their issuing value, meaning there’s extraordinarily little volatility. For instance, PFXF, which holds 114 preferreds, has a beta of just 0.2.
[See: 10 Long-Term Investing Strategies That Work.]
VanEck’s fund is unique in the preferred space because it doesn’t hold financial preferreds, which were particularly vulnerable during the 2007-09 financial crisis. Instead, it holds preferreds in telecoms like T-Mobile US ( TMUS) and energy stocks like NEE. PFXF isn’t invincible, but it’s one of the safest sources of high yield on the market. Expenses are 0.41 percent, and PFXF has a big dividend yield of 5.9 percent.
More from U.S. News
10 Skills the Best Investors Have
7 ETFs That Allow You to Invest in Space
7 Dividend Stocks to Benefit From Trump Tax Changes
6 Big-Dividend ETFs That Won’t Let You Down originally appeared on usnews.com
