The appeal of high-dividend exchange-traded funds, or ETFs, is obvious to most investors. Investment income is attractive to all ETF investors but can be critically important to retired folks or others who rely on dividends for living expenses.
[Sign up for stock news with our Invested newsletter.]
High-dividend ETFs use several methods to generate the income they distribute to shareholders. Some are straightforward, like buying high-yielding equities, bonds or preferred stock. Other funds are more creative. They might buy more obscure securities like floating-rate bank loans or master limited partnerships (MLP), or employ sophisticated option-writing strategies. Whatever approach they use, the objective is to provide consistent high dividend yields with the potential for some growth as well.
Diversification is another nice feature of ETFs, as they can include securities from several different sectors. Even sector-specific ETFs tend to have many individual issues in their portfolios. All things considered, high-dividend ETFs are an excellent option for investors who have income as a primary objective but who may not want to comb through individual stocks.
Here are seven high-dividend ETFs to add to your portfolio today:
| High-Dividend ETF | Assets Under Management | Trailing Dividend Yield* |
| Alerian MLP ETF (ticker: AMLP) | $8.4 billion | 7.4% |
| First Trust Preferred Securities and Income ETF (FPE) | $5.2 billion | 5.9% |
| ProShares S&P 500 High Income ETF (ISPY) | $86.5 million | 10.5% |
| VanEck BDC Income ETF (BIZD) | $1.1 billion | 10.7% |
| Invesco Senior Loan ETF (BKLN) | $7.2 billion | 8.8% |
| SPDR Blackstone High Income ETF (HYBL) | $153 million | 8.1% |
| SPDR Portfolio S&P 500 High Dividend ETF (SPYD) | $6.7 billion | 4.6% |
*As of May 28 close.
Alerian MLP ETF (AMLP)
AMLP is a popular ETF that tracks the performance of the Alerian MLP Infrastructure Index. The fund invests in MLPs that are involved in the midstream segment of the traditional energy business. These companies generate most of their earnings through the transportation, storage and processing of hydrocarbon commodities such as oil and natural gas.
The index is capitalization-weighted. There are some adjustments made for float size and liquidity, but generally investors can count on the fact that larger-sized companies will have a greater impact on performance.
Because MLPs avoid corporate taxation as a pass-through entity, AMLP is an excellent fund for people looking for superior income potential. It’s also a great way for investors to take advantage of the incredible domestic and international demand for energy.
After subtracting the fund’s expense ratio of 0.85%, AMLP should track the index closely.
Assets: $8.4 billion Yield: 7.4%
First Trust Preferred Securities and Income ETF (FPE)
FPE is an actively managed ETF that invests in preferred stocks and corporate bonds. Investors considering FPE should know that it is a somewhat aggressive investment. The fund can use leverage, or borrowed money, to buy securities and can invest in over-the-counter securities as well as those that trade on major exchanges.
Additionally, it can invest in high-yield bonds — commonly called junk bonds — and convertible securities, which are bonds and preferred stock that can be converted into common stock. Nonetheless, FPE is responsibly run and well worth considering.
FPE is not an index fund but it does use the ICE BofA US Investment Grade Institutional Capital Securities Index as its primary benchmark. The goal of the fund is to outperform that benchmark or, at least, provide returns that are substantially in line with it. The fund invests in many different sectors of the world economy but most of its holdings are currently concentrated in the financial and the utilities sectors.
Assets: $5.2 billion Yield: 5.9%
ProShares S&P 500 High Income ETF (ISPY)
ISPY has an inception date of Dec. 18, 2023, meaning the fund is only about six months old. Still, investors can have confidence in this ETF. The fund is managed by ProShares Advisors LLC, one of the most respected names in the ETF industry.
The objective of ISPY is to mirror the performance of the S&P Daily Covered Call Index after subtracting the fund’s reasonable expense ratio of 0.55%. The index represents a portfolio that owns all of the stocks in the S&P 500 and collects income premiums by writing (selling) one-month covered call options on those stocks every trading day.
ISPY does not write options itself. The fund replicates the index by using sophisticated swap agreements that generate precisely the same income as the actual options would. This is an innovative but effective way to generate excellent income from a well-known, broad market index.
Assets: $86.5 million Yield: 10.5%
[READ: 5 of the Best Undervalued Blue-Chip Stocks to Buy Now]
VanEck BDC Income ETF (BIZD)
If you are an income investor who is not familiar with business development companies (BDCs), BIZD might be a welcomed introduction to this high-income asset class.
A BDC is a specialized financial firm that makes money by lending to fast-growing private-equity-funded companies. What makes BDCs so attractive from an income standpoint is the fact that, by law, they must distribute at least 90% of their after-tax income back to investors in the form of regular dividends.
VanEck’s BIZD is an index ETF that mirrors the MVIS U.S. BDC Index which is composed of high-quality, publicly traded BDCs. The objective of the fund is to duplicate the performance of that index.
The fund’s fact sheet, published by VanEck, shows that Ares Capital Corp. (ARCC) is the top holding in BIZD. That one BDC represents 19.5% of the fund’s assets as of April 30. The fact sheet also reports an impressive five-year annualized return of 11.1% based on NAV as of that same date.
Assets: $1.1 billion Yield: 10.7%
Invesco Senior Loan ETF (BKLN)
BKLN tracks the Morningstar LSTA US Leveraged Loan 100 Index. The purpose of the index is to track the performance of the biggest institutional corporate bank loans based on market cap, interest rate spreads and interest payment history.
For those who are not familiar with that class of income-generating security, corporate bank loans are loans made by regional and national banks to their commercial customers. The loans are bought in bulk by Wall Street investment houses to be collateralized into bonds and sold to institutional investors such as mutual funds, pension funds and large endowments. Because the rates on bank loans are often adjustable, floating-rate instruments they tend to be less volatile than other fixed-income securities.
BKLN is based on a leveraged-loan index, meaning overall performance is enhanced by borrowing. This will help on the upside but can be more risky on the downside.
Assets: $7.2 billion Yield: 8.8%
SPDR Blackstone High Income ETF (HYBL)
The first bond fund on the list is HYBL. This fund invests mostly in domestic high-yield bonds. Although high-yield bonds are commonly referred to as junk bonds in Wall Street jargon, investors need not fear this asset class as long as they remain diversified and the individual bonds are selected by professional portfolio managers.
In addition to high-yield debt, which is the primary focus of HYBL, the fund will also invest in senior corporate loans and collateralized loan obligations, or CLOs. CLOs are portfolios of loans and other corporate debt that are bought by Wall Street investment bankers and securitized into bonds that are purchased by institutional investors.
The fund uses a top-down asset allocation approach while using a bottom-up security selection process. What this means in practice is that the portfolio managers look at the overall economy when deciding which sectors to invest in but use fundamental financial research to decide which particular bonds to buy.
Assets: $153 million Yield: 8.1%
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
SPYD is an index ETF that offers investors a straightforward high-dividend proposition. The fund is based on the S&P 500 High Dividend Index. That index is made up of the top 80 highest-yielding stocks found in the S&P 500. The fund has a very low expense ratio of just 0.07%. It should, therefore, provide investors with a performance nearly identical to the index.
If you’re familiar with the $529 billion SPDR S&P 500 ETF (SPY), it will be easy to understand SPYD, as the latter has a good deal of overlap with the former, but focuses on the firms with substantially higher yields.
Because SPYD holds only large-cap, well-established companies that are components of the S&P 500, income-oriented investors can use it as a core holding that gives them the opportunity for capital appreciation with enhanced dividend yields as compared to the broader index.
Assets: $6.7 billion Yield: 4.6%
More from U.S. News
Billionaire George Soros’ 6 Top Stock Picks
9 Best Cheap Dividend Stocks to Buy Under $20
7 Best High-Dividend ETFs to Buy Right Now originally appeared on usnews.com
Update 05/29/24: This story was previously published at an earlier date and has been updated with new information.
