Diversify beyond individual dividend stocks with these funds.
On Wall Street, higher risk sometimes carries higher rewards. That’s most evident in fixed-income investments that play the bond market — where low-risk securities like short- and medium-term U.S. Treasury bonds yield less than 1% at present, while “junk” bonds of risky corporations can yield several times that amount. With exchange-traded funds, however, investors can mitigate some of those risks by buying into a basket of securities instead of one high-yield stock or bond that could implode if things go wrong. These certainly aren’t risk-free funds, but with a few dozen holdings and current yields of more than 5% based on the last 30 days of payouts, these seven funds with huge dividends may be worth a look as an alternative to individual dividend stocks.
iShares Broad USD High Yield Corporate Bond ETF (ticker: USHY)
Composed of more than 2,000 individual bonds, this fund focuses on high-yield bonds that may come from borrowers who are less creditworthy — but therefore pay significantly higher interest payments to bondholders as result. This includes companies like T-Mobile US (TMUS), which remains behind its larger telecom peers despite a very expensive merger with Sprint recently, or embattled automaker Ford Motor Co. (F) that has struggled to find interest in anything other than its pickup trucks. There is obviously risk here, but collectively the portfolio is diversified enough to give more stability than the holdings would by themselves. The fund’s expense ratio is 0.15%.
Current yield: 5.1%
Global X U.S. Preferred ETF (PFFD)
Preferred stock is a kind of hybrid investment between stocks and bonds. It is neither better nor worse, however, and the place of this asset in your portfolio depends on your individual investing goals. Preferred stock is also more stable than common stock — meaning less volatility but also less appreciation if the underlying company does well. And it offers significantly bigger yield like bonds do, but it’s still subordinated in the event of a default and thus carries more risk than traditional fixed-income investments. Global X offers a diversified portfolio of almost 300 of these investments in this popular high-yield ETF, with an expense ratio of 0.23%.
Current yield: 5.3%
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
Maybe you’ve looked at the popular S&P 500 and said to yourself that it would be nice to get just the top dividend payers and cut out the cheapskate companies that don’t pay anything back to shareholders. Well, that’s exactly what SPYD offers, by focusing on the largest U.S. stocks that pay above-average dividends — such as Public Storage (PSA) and Broadcom (AVGO) — and cutting out the rest. The result is a focused list of about 80 total stocks, which is admittedly more risky than the bigger list of 500 components in the S&P but comes with a yield that is almost three times that of the broader index. The fund has a low expense ratio of 0.07%.
Current yield: 5.4%
Energy Select Sector SPDR ETF (XLE)
The energy sector has recovered a bit from its March lows when crude oil futures briefly traded at a negative price thanks to a unique dynamic that included a lack of storage. As a result, XLE is up more than 50% from its 52-week low. But more importantly, the major energy firms that make up this ETF have maintained their commitment to big dividends as short-term volatility hasn’t really undercut their long-term strategies. Top holdings include Big Oil players such as Chevron Corp. (CVX), Exxon Mobil Corp. (XOM) and ConocoPhillips (COP). XLE has an expense ratio of 0.13%.
Current yield: 6.3%
Vanguard Global ex-U.S. Real Estate ETF (VNQI)
Speaking of beaten-down sectors, VNQI is a global real estate fund that has kept up with its history of huge dividend yields. The fund excludes U.S. corporations. Its top regions include Japan and Hong Kong, among others. While you may not necessarily recognize the components of this fund, such as German firm Vonovia SA (VNNVF) — which owns residential and commercial real estate across Europe — or Japanese real estate developer Mitsui Fudosan (MTSFF), the stocks here are very similar to domestic real estate investment trusts in that they are backed by hard property assets and generate reliable income via rent and other related revenue streams. VNQI comes with an expense ratio of 0.12%.
Current yield: 8.6%
Global X SuperDividend REIT ETF (SRET)
While it’s incredibly difficult to find an ETF with a double-digit yield, SRET comes awfully close though a focus on about 30 of the highest-yielding real estate stocks on Wall Street, with a domestic-only focus in contrast to the prior global fund. To be clear, these stocks are formally structured as REITs, but many do not own physical real estate and instead deal in financing products such as mortgage-backed securities. The 2008 financial crisis showed firsthand the risks of focusing too much on residential real estate lending, so there is indeed risk here — but this SuperDividend ETF lives up to its name with a tremendous yield. The fund’s expense ratio is 0.59%.
Current yield: 9.1%
Invesco KBW High Dividend Yield Financial ETF (KBWD)
A related play, KBWD is a dividend-focused ETF that zeroes in on the financial sector. Many of the roughly 40 components of this Invesco fund are smaller players that exclusively deal in real estate-related lending such as Apollo Commercial Real Estate Finance (ARI). As with SRET, investors should keep in mind that higher potential paydays come with significantly higher risk. After all, the big banks are decidedly absent here in place of mid-sized and specialized lenders. If you don’t mind the risk profile, however, it’s hard to argue with the tremendous income potential. This fund also comes with a significantly higher expense ratio than others on this list, at 1.58%.
Current yield: 9.7%
Seven ETFs with big dividend yields:
— iShares Broad USD High Yield Corporate Bond ETF (USHY)
— Global X U.S. Preferred ETF (PFFD)
— SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
— Energy Select Sector SPDR ETF (XLE)
— Vanguard Global ex-U.S. Real Estate ETF (VNQI)
— Global X SuperDividend REIT ETF (SRET)
— Invesco KBW High Dividend Yield Financial ETF (KBWD)
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