For some investors, particularly those in the withdrawal phase of their investment journey, the primary goal isn’t necessarily to maximize total returns. Instead, they are often focused on generating steady, consistent monthly income to support their retirement plans.
This objective can sometimes be achieved by selling shares, but some investors are hesitant to do so due to a psychological bias against selling hard-earned assets they’ve accumulated over time.
To address this, a variety of exchange-traded funds, or ETFs, are available, each designed with a singular focus: to provide consistent, higher-than-average monthly income. These ETFs employ diverse strategies and invest in various assets, all geared toward achieving a steady income stream.
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For income-focused investors, especially those in retirement or nearing it, these ETFs can be an integral part of their financial strategy, ensuring a continuous flow of income to meet their monthly financial needs.
“Another key benefit of income ETFs compared to selecting a few individual companies is diversification, as they invest in a basket of income-generating assets that can help to mitigate risk and provide a more stable income stream,” says Rohan Reddy, director of research at Global X ETFs.
However, it’s important to note that these high-yield ETFs may not offer substantial capital appreciation. Their primary purpose is not to grow your principal aggressively but to maintain it while distributing income regularly.
This makes them particularly appealing to those who rely on their investment portfolios for regular income, as they can continue to receive funds each month without having to sell off their assets, but less so for younger investors trying to grow a portfolio.
Here are seven of the best high-yield ETFs to buy in 2023 for income:
| ETF | Dividend yield (trailing 12 months) | Expense ratio |
| Global X U.S. Preferred ETF (ticker: PFFD) | 6.9% | 0.23% |
| Global X Nasdaq 100 Covered Call ETF (QYLD) | 12.6% | 0.6% |
| JPMorgan Equity Premium Income ETF (JEPI) | 9.1% | 0.35% |
| Alerian MLP ETF (AMLP) | 7.8% | 0.85% |
| Global X SuperDividend REIT ETF (SRET) | 8.4% | 0.59% |
| iShares iBoxx $ High Yield Corporate Bond ETF (HYG) | 6% | 0.49% |
| Invesco Zacks Multi-Asset Income ETF (CVY) | 5.4% | 1.06% |
Global X U.S. Preferred ETF (PFFD)
“Preferred shares are an interesting ‘hybrid strategy’ — they sort of act like debt, but also move like equities,” says Derek Horstmeyer, professor of finance at the George Mason University School of Business. “If you want an income-generating asset class that has more risk than bonds but less risk than equities, they might appeal to you.” To access preferred shares, consider PFFD.
Picking individual preferred share issues can be difficult, as each one comes with unique terms and payouts. By buying PFFD, investors gain access to a much more diversified basket of 212 issues at a 0.23% expense ratio, many of which hail from financial sector companies. Currently, PFFD has a 6.9% 12-month trailing yield, and it also pays monthly distributions.
Global X Nasdaq 100 Covered Call ETF (QYLD)
“Covered call ETFs invest in a diversified portfolio of stocks and sell, or ‘write,’ call options on the underlying individual companies or indices,” Reddy says. “The result is a regular income stream through the premiums received from selling call options.” Essentially, these ETFs trade the upside potential from their underlying investment into an immediate cash payout.
One of the most popular covered call ETFs is QYLD, which sells covered calls on the Nasdaq-100 index. Thanks to the Nasdaq-100’s high volatility, QYLD is able to generate high premiums, with a 12.6% 12-month trailing yield. This ETF has made consistent monthly distributions for nine years running. However, it does charge a higher 0.6% expense ratio.
JPMorgan Equity Premium Income ETF (JEPI)
Another highly popular covered call ETF to watch is JEPI. This ETF has accrued around $30 billion in assets under management, or AUM, since its debut in May 2020. Unlike QYLD, JEPI does not sell covered calls on an index. Rather, the ETF starts by actively selecting a portfolio of stocks designed to provide the bulk of the S&P 500 index’s returns, but with less volatility.
Then, the ETF deploys a covered call strategy to generate high monthly income. However, unlike QYLD, JEPI does not sell index call options directly. Because JEPI does not hold all of the constituent S&P 500 index stocks, it must use equity-linked notes, or ELNs, with a counter-party to obtain its covered call exposure. JEPI charges 0.35% and pays a 12-month yield of 9.1%.
Alerian MLP ETF (AMLP)
Income investors looking for a high-yield asset with potential inflation-hedging properties can consider master limited partnerships, or MLPs. These entities primarily operate in energy infrastructure, focusing on the transportation, storage and processing of natural resources like oil, natural gas and refined products, which can help them generate stable and predictable cash flows.
For access to a broad basket of MLPs, consider AMLP, which tracks the Alerian MLP Infrastructure Index. This ETF has attracted over $7.2 billion in AUM and currently pays a decent 7.8% trailing 12-month yield. During the rising inflation environment of 2021 and 2022, AMLP returned 34.5% and 25.1%, respectively. However, the ETF does charge a fairly high 0.85% expense ratio.
[See: 7 Best Energy ETFs to Buy Now]
Global X SuperDividend REIT ETF (SRET)
U.S. real estate investment trusts, or REITs, are required to pay out 90% of their income to investors, which usually ensures a steadier stream of income. However, dividend yields can vary wildly between REITs, and not all REITs pay on a monthly basis. To address this, Global X offers SRET, which tracks the 30 highest-yielding REITs globally as represented by the Solactive Global SuperDividend REIT Index.
Currently, investors can expect a high 12-month trailing yield of 8.4% along with monthly distributions, which the ETF has paid consistently for eight years running. That being said, the historical performance of this ETF has been poor, with an annualized total return of -8.3% over the trailing five years. In terms of fees, SRET charges 0.59%, one basis point lower than QYLD.
iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
Not all high-yield income ETFs make use of equities or derivatives. Some actually fall into the fixed-income category. HYG, in particular, is notable given its use of high-yield bonds, also known as junk bonds. These are bonds issued by companies with below-investment-grade credit ratings, which is indicative of a higher probability of default. To compensate for this risk, these bonds pay higher yields.
To access the high-yield bond market, investors can buy HYG. This ETF tracks the Markit iBoxx USD Liquid High Yield Index, which as its name suggests screens holdings for above-average liquidity, a key consideration for bonds given that they trade over the counter. Currently, investors can expect monthly distributions and a 6% 12-month trailing yield, against a 0.49% expense ratio.
Invesco Zacks Multi-Asset Income ETF (CVY)
For even greater diversification, investors can combine multiple different income-oriented assets. For instance, an income portfolio could employ dividend stocks, REITs, MLPs and preferred shares, each offering their own unique sources of risk and return. While investors can assemble this portfolio from multiple individual ETFs, another alternative is to use an all-in-one solution like CVY.
CVY holds all four of the aforementioned assets in addition to a few closed-end funds. This ETF is an example of an allocation fund that strategically balances between multiple different assets. Currently, investors can expect a 1.06% expense ratio, which is higher due to the use of closed-end funds. CVY pays a 5.4% 12-month trailing distribution and makes quarterly distributions.
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