Since their introduction in 1993, American investors have embraced exchange-traded funds. ETFs offer the convenience of buying a diverse, professionally managed portfolio of securities in a single, easy-to-understand security that trades just like shares of common stock.
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With well over 3,000 ETFs on the market, there’s an ETF to fill the needs of almost any retail investor, and that includes people looking for dependable current income and the potential for long-term capital appreciation.
Most ETFs, like most stocks that pay regular dividends, pay income quarterly, but many funds — especially those with income as a primary objective — distribute their dividends monthly.
Investors, such as retirees or others who depend on dividends as a principal source of income, often prefer monthly dividends. Monthly payments fit well into the personal budgeting process and, all else equal, getting paid sooner is better than getting paid later.
If the idea of a high, reliable monthly income from your investment portfolio is intriguing, consider the high-quality ETFs on this list. There are several different asset classes featured here, including fixed-income securities of different types and maturities. In other words, it was designed with diversification and yield in mind:
| Monthly Dividend ETF | Trailing-12-month Dividend Yield* |
| iShares Core 1-5 Year USD Bond ETF (ticker: ISTB) | 3.5% |
| Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) | 3.6% |
| First Trust Preferred Securities & Income ETF (FPE) | 5.5% |
| iShares 20+ Year Treasury Bond ETF (TLT) | 3.7% |
| JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) | 9.2% |
| Invesco Senior Loan ETF (BKLN) | 8.6% |
| SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) | 5.2% |
*As of Sept. 10 close.
iShares Core 1-5 Year USD Bond ETF (ISTB)
ISTB is a straightforward, low-cost ETF in the iShares family of funds that’s owned and operated by BlackRock Inc. (BLK). ISTB mirrors the BBG Universal 1-5 Year Bond Index, and has the objective of matching the income and appreciation of that index after the small 0.06% expense ratio has been subtracted.
This $4 billion fund is very well diversified. It offers exposure to government bonds, investment-grade bonds and high-yield securities. Because it does not invest in instruments with maturities of over five years, it should be somewhat less volatile than longer-term bond funds.
As the fund’s name implies, this ETF only owns dollar-denominated bonds. Only about 20% of the bonds held in the portfolio are rated BB or below by the major rating services. The rest are investment grade.
12-month trailing yield: 3.5%
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
SPHD is a $3.8 billion common stock fund that invests with an eye toward dividends and growth. The fund tracks the S&P 500 Low Volatility High Dividend Index.
That index owns the 50 stocks in the S&P 500 that have the highest dividend yields, but, rather than being cap weighted, the index and the fund are volatility weighted. In practical terms, that means that stocks with lower implied volatility will receive higher weightings in the portfolio. The result for shareholders is a good dividend yield with lower price volatility. For many investors, SPHD is just what they’re looking for.
The portfolio managers rebalance the fund to match the index twice a year — once in January and once in July. This keeps trading costs low by keeping internal trading to a minimum. The expense ratio of this ETF is 0.30%, which is in line with its peers.
12-month trailing yield: 3.6%
First Trust Preferred Securities & Income ETF (FPE)
FPE uses the ICE BofA US Investment Grade Capital Securities Index as a benchmark, but this $5.5 billion fund is not an index fund. The goal of the portfolio managers is not to match the index but to outperform it.
FPE is a well-diversified fund that invests its assets in several different sectors of the U.S. and world economy. Currently, most of the fund’s holdings are in financials and public utilities.
This ETF has a relatively good dividend yield, but generating that yield involves some risk-taking. Investors should think of this ETF as a somewhat aggressive investment. This is mainly because the fund buys securities on margin, resulting in leverage that can enhance both upside and downside performance.
Investors should not be surprised to see some high-yield and convertible securities in the portfolio.
12-month trailing yield: 5.5%
iShares 20+ Year Treasury Bond ETF (TLT)
TLT is a $62 billion ETF that follows the ICE U.S. Treasury 20+ Years Bond Index. Although TLT is an index fund, it is not a strictly replicating index fund. At least 80% of the fund’s assets will be invested in components of the benchmark, but the other 20% can be in other Treasury securities or high-quality bonds that the portfolio managers feel will enhance the overall performance of the fund.
With an expense ratio of 0.15%, TLT can be considered a low-cost security. It’s an excellent way to get exposure to long-term U.S. Treasury bonds. Investors get strategic access to bonds with a minimum of 20 and a maximum of 30 years left to maturity. This allows investors who are so inclined to customize their fixed-income portfolios to the long end of the market and lock in today’s higher rates.
TLT can be used as the foundational element of the fixed-income portion of a conservative investment portfolio.
12-month trailing yield: 3.7%
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JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)
JEPQ is in an interesting category of ETFs that have gained popularity over the last few years. They are called buy/write funds and they use an innovative mixture of equity securities, call options and derivatives to achieve their objective of generating substantial income while providing growth potential.
JEPQ owns all the stocks that comprise the Nasdaq-100 Index. That component of the fund is where the potential for capital appreciation comes from. To generate income, the portfolio managers earn a premium by continuously writing covered calls against the stocks in the portfolio and by buying equity-linked notes that are linked to the index.
When stock market volatility is high, as it has been lately, the premiums JEPQ takes in can be quite substantial. The expense ratio of 0.35% is pretty reasonable considering the sophistication level of the fund’s strategy and the high level of internal trading that takes place.
12-month trailing yield: 9.2%
Invesco Senior Loan ETF (BKLN)
This ETF invests in bank loans, which are collateralized bonds mostly purchased by institutional investors like ETFs, mutual funds, insurance companies and pension funds. They are created by investment bankers who purchase individual loans from regional and national banks and bundle them into fixed-income securities.
BKLN was designed to mirror a bank loan index called the Morningstar LSTA US Leveraged Loan 100 Index. The index is not well known to retail investors, but it is considered a reliable representation of the universe of large, leveraged bank loan bonds. Leveraged, in the context of this index, only means that the loans in the portfolios are generally made to companies with generally high debt levels. It does not mean that BKLN buys securities on margin.
BKLN is a $7 billion ETF with an expense ratio of 0.25%. Considering the amount of research and the level of expertise it takes to identify high-quality bank loan bonds, that expense ratio is more than reasonable.
12-month trailing yield: 8.6%
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)
Investors looking for targeted exposure to short-term, high-quality fixed-income securities should consider BIL. This $34 billion ETF tracks the Bloomberg 1-3 month U.S. Treasury Bill Index. After the low expense ratio of 0.14% is accounted for, the fund should deliver performance that mirrors its benchmark.
The short end of the yield curve is, historically speaking, providing income investors with an exceptional yield. That’s good news for investors who own BIL, but it is very likely a temporary situation. The main reason investors buy BIL and other short-term bond funds is because they tend to fluctuate less in the face of volatile interest-rate markets.
The short-term nature of the securities in the portfolio means that the fund must reinvest funds and rebalance itself to match the index at the end of every month.
12-month trailing yield: 5.2%
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