Snag a steady stream of income with these high-yield ETFs.
With the S&P 500 down about 16% year to date in 2022, there has perhaps never been a better time to consider a low-risk, income-oriented investing strategy. However, even after the declines in the stock market this year, the typical stock in the S&P only yields about 1.5% at present. That meager payout is not only a pretty poor hedge against future declines, but even with a $1 million portfolio you would only generate $15,000 per year on that payout ratio. If you’re instead after a more significant income stream, then consider one of these seven high-yield ETFs, paying out as much as 10.8%. Dividend yields are calculated for the trailing-12-month, or TTM, period.
Vanguard High Dividend Yield ETF (ticker: VYM)
One of the largest dividend ETFs out there, this Vanguard fund commands roughly $45 billion in assets. It’s also among the cheapest on this list, with a rock-bottom expense ratio of 0.06%, or $6 annually on every $10,000 invested. The portfolio comprises about 440 total stocks, including some of the largest and most iconic dividend payers out there, with health care giant Johnson & Johnson (JNJ), consumer products icon Procter & Gamble Co. (PG) and Big Oil mainstay Exxon Mobil Corp. (XOM) as the top three holdings right now. VYM isn’t terribly sophisticated, but it’s a cheap and effective way for ETF investors to tap into reliable yield.
Dividend yield (TTM): 2.9%
Alerian MLP ETF (AMLP)
One corner of Wall Street that’s doing particularly well in 2022 is the energy sector. And a certain subset of energy stocks known as master limited partnerships, or MLPs, are among the most reliable income investments you can tap into. These firms are pipeline and storage companies, not explorers, and thus more insulated from energy commodity volatility. The $6 billion Alerian MLP is one of the largest ETFs focused solely on this specialized group of energy companies. There’s a very focused list of less than 20 total holdings, including Energy Transfer LP (ET), Western Midstream Partners LP (WES) and Enterprise Product Partners LP (EPD), collectively representing 30% of the portfolio. However, these midstream energy stocks offer up big dividends — and gains of 18% year to date make this dividend ETF worth a look beyond just its income potential.
Dividend yield (TTM): 7.4%
iShares Mortgage Real Estate ETF (REM)
Another sector that historically pays above-average dividends, thanks to a reliable business model, is real estate. Unfortunately, many of the more diversified real estate investment trust, or REIT, funds such as the $6 billion Schwab US REIT ETF (SCHH), barely yield better than the typical S&P 500 index fund. Instead, more aggressive investors may want to cut out the rest of the REIT universe and instead just zero in on a group of mortgage-related REITs. The 30 or so stocks in this fund, such as Annaly Capital Management Inc. (NLY) and Starwood Property Trust Inc. (STWD), pay significantly better distributions, adding up to a yield that is roughly five times what the S&P does right now.
Dividend yield (TTM): 7.0%
Global X SuperDividend ETF (SDIV)
Of course, if you want serious yield beyond what you’ll typically find on Wall Street, then you have to look beyond vanilla large-cap dividend funds. This $700 million Global X offering pursues yield no matter where it lies, in both international stocks as well as smaller names you’ve never heard of. Built with about 100 stocks hand-picked because of their massive payout as well as their relative stability compared with their peers, top holdings in SDIV right now include China-based Logan Properties Holdings (3380:HK), Halyk Savings Bank of Kazakhstan (HSBK) and Brazilian utility CPFL Energia SA (CPFE3). There is assuredly more risk in smaller stocks in emerging markets, but with a double-digit yield, there’s clearly income potential, too.
Dividend yield (TTM): 10.8%
JPMorgan Equity Premium Income ETF (JEPI)
If you want bigger yield but don’t want to take a focused sector bet that could skew your portfolio away from a truly diversified approach, this JPMorgan fund offers an interesting alternative for income-oriented investors. This high-yield ETF is, on the surface, just a large-cap fund that holds about 100 blue-chip stocks, such as pharma giant AbbVie Inc. (ABV) and soft drink icon Coca-Cola Co. (KO). However, it also sells options known as covered calls on those stocks to supercharge the dividends. This strategy caps the upside on share prices, but it generates consistent premiums that help drive an impressive income stream for JEPI shareholders.
Dividend yield (TTM): 8.0%
Global X U.S. Preferred ETF (PFFD)
A hybrid between stocks and bonds, preferred stocks are far more stable in share price than traditional common stocks, but they tend to offer far higher yields than corporate bonds from the same entity. Although preferred stocks don’t rise as much as common stocks in bull markets, this ETF’s diversified portfolio of about 250 holdings generates consistent income that dwarfs what you’ll find in traditional common stocks. However, the PFFD portfolio right now includes preferreds in top U.S. corporations including banking giant Wells Fargo & Co. (WFC) and utility NextEra Energy Inc. (NEE).
Dividend yield (TTM): 6.0%
iShares Broad USD High Yield Corporate Bond ETF (USHY)
When most investors think about fixed-income strategies, they first think about the bond market. However, even after recent interest rate increases, the 10-year U.S. Treasury bond still yields less than 3% at present. If you’re looking for bigger yield, consider this bond ETF that focuses on high-yield bonds — or junk bonds, in common parlance. USHY has a higher risk profile, as it involves bonds in smaller and less-capitalized firms; however, its portfolio is diversified across more than 2,000 individual bonds.
Dividend yield (TTM): 5.6%
7 high-yield ETFs for income investors:
— Vanguard High Dividend Yield ETF (VYM)
— Alerian MLP ETF (AMLP)
— iShares Mortgage Real Estate ETF (REM)
— Global X SuperDividend ETF (SDIV)
— JPMorgan Equity Premium Income ETF (JEPI)
— Global X U.S. Preferred ETF (PFFD)
— iShares Broad USD High Yield Corporate Bond ETF (USHY)
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Update 05/19/22: This story was published at an earlier date and has been updated with new information.