As interest rates and inflation sit at multi-decade highs, future stock market returns have become even more enigmatic, with the S&P 500 retracting 4.9% in September. Increasing stock market volatility and a questionable economic backdrop leave investors seeking safe havens.
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Dividend-focused ETFs might be the solution, offering robust yields that can mitigate the blows of market declines. Yet, the rise in interest rates has prompted most investors to proportionally raise their yield thresholds. For many, traditional dividend ETFs don’t cut it.
Investors looking for dividend ETFs with more attractive yields should take a look at these six high-dividend ETFs:
| ETF | Assets | Dividend yield (as of Oct. 9 close) |
| Global X MLP ETF (ticker: MLPA) | $1.4 billion | 7.2% |
| VanEck Preferred Securities ex Financials ETF (PFXF) | $1.3 billion | 7.5% |
| VanEck Mortgage REIT Income ETF (MORT) | $207.8 million | 13.8% |
| Invesco S&P Small-Cap High Dividend Low Volatility ETF (XSHD) | $18.8 million | 8.4% |
| JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) | $5.6 billion | 11.8% |
| iShares International Select Dividend ETF (IDV) | $4.2 billion | 7.2% |
Global X MLP ETF (MLPA)
The Global X MLP ETF is a portfolio of master limited partnerships (MLPs) in the midstream energy industry, primarily consisting of firms that operate oil and gas pipelines and storage facilities.
Popular among income investors, energy MLPs offer a level of stability and income not typically present in the energy sector. Not exposed to the highly volatile business of oil and gas production, midstream MLPs solely focus on the transportation and storage of petrochemicals. These MLPs lock in fee-based contracts that aren’t tied to the volatile price of oil, insulating them from the price swings that upstream companies face.
Counting stalwarts such as Enterprise Products Partners LP (EPD) and Energy Transfer LP (ET) as top holdings, MLPA’s portfolio is packed with stocks with long-term track records for paying consistently high dividends.
At a dividend yield of 7.2%, MLPA is an excellent pick for investors willing to invest in the often-unpopular energy sector.
Assets: $1.4 billion Dividend yield: 7.2%
VanEck Preferred Securities ex Financials ETF (PFXF)
Preferred stocks sit at the crossroads between the reliability of fixed income and the dynamic nature of equities. Preferred shares, while resembling bonds with their income generation, often offer high yields — a nod to their additional risk, as preferred stocks sit lower on the capital structure compared to bonds.
And with interest rates sitting at multi-decade highs, the world of preferred stocks is ripe with opportunity. One way to escape the confusing woes of individual preferred stock selection is an ETF like the VanEck Preferred Securities ex Financials ETF.
With an impressive 7.5% dividend yield, PFXF outpaces even many high-yield bond funds, like the iShares iBoxx High Yield Corporate Bond ETF (HYG), which trails with a 5.8% yield.
PFXF has a well diversified portfolio, spanning over 100 securities, with the lion’s share concentrated in sectors like REITs, utilities and telecommunications. But one sector strategically excluded from PFXF is financials. In light of the sector’s turbulence marked by the banking crisis in March, most income investors would prefer to steer clear of the sector.
Assets: $1.3 billion Dividend yield: 7.5%
VanEck Mortgage REIT Income ETF (MORT)
Mortgage REITs, or mREITs, are unique real estate investment trusts that invest in mortgages, rather than actual real estate. They essentially represent dual wagers: one on the health of the real estate market, and the other on the trajectory of interest rates.
mREITs stand out for their considerable use of leverage, specifically via short-term debt. This approach amplifies shareholder returns when conditions are stable, but also heightens their sensitivity to sharp changes in interest rates. This was especially evident in 2022 as the Federal Reserve began hiking interest rates to multi-decade highs.
Accounting for the enhanced risks of mREITs in the current environment, the VanEck Mortgage REIT Income ETF offers a shocking 13.8% dividend yield. While the risks are significant amidst an inverted yield curve, investors should consider whether the worst for the sector has passed, which would position MORT as an attractive proposition.
Assets: $207.8 million Dividend yield: 13.8%
[SEE: 7 Best REIT ETFs to Buy]
Invesco S&P Small-Cap High Dividend Low Volatility ETF (XSHD)
The Invesco S&P Small-Cap High Dividend Low Volatility ETF presents a uniquely crafted, factor-based investment approach. Drawing inspiration from academic insights about factor investing, the fund underlines the potential for low-volatility small-cap stocks with high dividend yields to outperform the broad stock market.
At its core, XSHD holds a portfolio of small-cap stocks across a variety of sectors that have both high dividend yields and low historical volatility. With an attractive dividend yield of 8.4%, a below-market price-to-earnings ratio clocking in at 11.5, and its signature low-volatility attribute, XSHD appears to offer an almost ideal mix for income-focused investors.
Yet, XSHD has struggled recently. Year-to-date, the fund has retreated by 10.2%, compared with a 12.9% rise in the S&P 500. But the silver lining is that the dip in XSHD could be an enticing entry point for investors looking for value.
Assets: $18.8 million Dividend yield: 8.4%
JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)
Investors looking for unconventional income opportunities might find the JPMorgan Nasdaq Equity Premium Income ETF to be an intriguing addition to their portfolios. Unlike traditional dividend funds that derive income from corporate profits, JEPQ generates income by selling options against a selection of U.S. large-cap growth stocks. The strategy not only taps into the potential upside of growth stocks but also provides a steady income stream.
A standout feature of JEPQ is its resilience during market volatility. Whereas volatility tends to spell losses for most funds, JEPQ provides a hedge. This counterintuitive advantage stems from the way option pricing behaves: as volatility escalates, so do option prices. Consequently, the premiums JEPQ earns from selling options increase during periods of market volatility, offering a protective cushion against losses elsewhere in your portfolio.
Paying monthly dividends, JEPQ has yields that fluctuate month-to-month, based on changing option prices. However, the strategy has remained consistent since the fund’s May 2022 inception. Year to date, the fund’s 25.9% return eclipses that of the S&P 500 over the same period.
Assets: $5.6 billion Dividend yield: 11.8%
iShares International Select Dividend ETF (IDV)
Investors keen on not limiting themselves to the U.S. market should know that some of the best yield opportunities lie abroad. The iShares International Select Dividend ETF is a prime candidate, offering exposure to high-quality international stocks paying high dividend yields.
Sourcing only from developed markets like the U.K., Canada and South Korea, IDV doesn’t exhibit the volatility of an emerging markets fund. Yet, the fund still pays a 7.2% dividend yield, giving it a considerable yield advantage over most large-cap U.S. dividend funds.
Counting global giants like Rio Tinto PLC (RIO), British American Tobacco Industries PLC (BTI) and Vodafone Group PLC (VOD) as holdings, IDV is an attractive option for investors looking to diversify outside of the U.S.
Assets: $4.2 billion Dividend yield: 7.2%
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6 of the Best High-Dividend ETFs originally appeared on usnews.com
Update 10/10/23: This story was previously published at an earlier date and has been updated with new information.
