Exchange-traded funds, or ETFs, are one of the most popular investment vehicles available. They are simple to understand, can be traded as easily as a stock and are incredibly versatile. There is an ETF for almost any asset class and any investment strategy a retail investor would need.
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Investors, such as retirees or those on a fixed income, who have a high current income as a primary objective have a large selection of ETFs at their disposal. High-dividend ETFs emphasize superior dividend yields that shareholders can use to defray current expenses, save for the future or reinvest back in the market to take advantage of compounding. These ETFs do more, however, than just distribute income. Many also offer the possibility of capital appreciation.
If income generation is an important part of your investment approach and you appreciate the ease and convenience of ETF investing, take a few minutes to review this list of seven of the best high-dividend ETFs to buy today:
| ETF | Expense Ratio | 12-Month Yield |
| FT Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF (ticker: KNG) | 0.75% | 8.6% |
| SPDR Blackstone Senior Loan ETF (SRLN) | 0.70% | 8.8% |
| Virtus Private Credit ETF (VPC) | 9.72% | 10.5% |
| Franklin Income Focus ETF (INCM) | 0.38% | 5.4% |
| iShares 20+ Year Treasury Bond Buywrite Strategy ETF (TLTW) | 0.35% | 15.5% |
| VanEck Preferred Securities ex Financials ETF (PFXF) | 0.40% | 6.9% |
| Global X Alternative Income ETF (ALTY) | 0.50% | 7.1% |
FT Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG)
KNG is a $3.4 billion ETF owned and managed by First Trust Advisors, a well-respected asset manager.
The fund’s strategy is easy to understand but takes a lot of sophistication and a large pool of assets to execute properly. KNG is an index fund that mirrors the Cboe S&P 500 Dividend Aristocrats Target Income Index. In concert with the index, the portfolio managers buy the stocks in the S&P 500 Dividend Aristocrats Index — an index of companies that have raised their annual dividends for at least 25 consecutive years — and, subsequently, write covered calls against those stocks. The fund collects regular dividends from the stocks while also generating significant premium income from the calls it sells.
The goal of this ETF is to provide a dividend yield roughly 8% higher than that of the S&P 500. KNG has an expense ratio of 0.75% and a 12-month yield of 8.6%.
SPDR Blackstone Senior Loan ETF (SRLN)
SRLN is a member of State Street Global Advisor’s famous SPDR family of funds, but the portfolio manager for this $7.6 billion ETF is The Blackstone Group. Blackstone is a $1 trillion asset manager specializing in alternative securities.
The fund uses the Markit iBoxx USD Liquid Leveraged Loan Index as its primary benchmark. While most index funds seek to match the performance of the underlying index, SRLN tries to outperform its benchmark by as wide a margin as possible.
SRLN is in a class of securities known as bank loan funds. Bank loans are a unique category of securities bought mostly by institutional investors such as mutual funds, insurance companies and pension funds. Bank loans are, as the name implies, commercial loans made by banks that are securitized and turned into bonds by Wall Street investment bankers. They can offer an excellent income, but are generally unavailable to retail investors.
The relatively high expense ratio of 0.7% for SRLN is due to the fact that the fund is sub-advised and the securities it buys require a high degree of expertise to analyze.
The 12-month yield of SRLN is 8.9%.
Virtus Private Credit ETF (VPC)
Virtus Investment Partners is a boutique asset manager with about $180 billion in assets in partnership with its affiliated money managers. VPC is a $52 million index fund that tracks the Indxx Private Credit Index. That benchmark was designed to reflect the domestic business development company (BDC) market. BDCs are specialty finance companies that make debt and equity investments in private or small public companies. BDCs avoid taxation at the corporate level by distributing at least 90% of taxable earnings to shareholders as income dividends.
VPC owns individual BDCs but will also invest in closed-end funds that focus on the private credit segment. There are only about 60 holdings in the fund, but they were chosen to be a good representation of the entire BDC universe and to offer as much diversification as possible. The fund is dividend-weighted rather than cap-weighted or equal-weighted. This emphasis on high-dividend securities results in a higher yield for shareholders.
Investors may be alarmed by the fund’s high 9.72% expense ratio, which includes 8.97% in acquired fund fees that VPC must by law include in its expense ratio calculation but are not paid directly from net assets.
The 12-month yield for VPC is 10.5%.
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Franklin Income Focus ETF (INCM)
INCM is not a large ETF but has earned a place on this list by its potent income generation strategy. The fund has assets of about $355 million, and it invests those assets in a calculated mix of the equity and debt of publicly traded domestic companies. It enhances its income by also buying equity-linked notes and equity index-linked notes.
Equity-linked notes don’t make regular income payments but earn profits at maturity when the target index has positive performance. Equity index-linked notes are a similar derivative security that does pay income based on the volatility of the index they track.
Conservative investors shouldn’t be put off by the inclusion of derivatives in the portfolio. The majority of the fund is invested in traditional stocks and bonds. The top three public company holdings in the fund are the well-known, large-cap stocks Chevron Corp. (CVX), Exxon Mobil Corp. (XOM) and JPMorgan Chase & Co. (JPM).
The fund carries an expense ratio of 0.38% and yields 5.4%.
iShares 20+ Year Treasury Bond Buywrite Strategy ETF (TLTW)
Treasury bonds are some of the safest investments. As such, they are generally not known as superior income vehicles, especially in today’s historically low bond yield environment. TLTW, however, employs a unique buy/write options strategy to earn a high and consistent income from long-term government securities.
TLTW mirrors the CBOE TLT 2% OTM Buywrite Index. The fund holds shares of the $60 billion iShares 20+ Treasury Bond ETF (TLT) and generates a high level of premium income by constantly selling short-term covered calls against those fund holdings. The income earned by holding shares of TLT — currently yielding 3.9% — is added to the continuous premium income being generated to provide TLTW shareholders with a generous dividend yield.
TLTW is a popular fund with about $1.1 billion in assets. The fund has an expense ratio of 0.35% and currently provides a 12-month yield of 15.5%.
VanEck Preferred Securities ex Financials ETF (PFXF)
Preferred stocks are primarily income vehicles. They trade like equity securities and can appreciate when the general level of interest rates fall but, for the most part, investors should consider them fixed-income securities.
PFXF invests in preferred stocks of all sectors except the financial sector. The fund owns both fixed-rate and adjustable-rate securities and will also buy convertible preferred stock — that is, preferred stock that can be exchanged for common shares.
PFXF is an index ETF that follows the ICE Exchange-Listed Fixed & Adjustable Rate Non-Financial Preferred Securities Index. The fund has assets of $1.9 billion and an expense ratio of 0.4%.
The fund and its benchmark are cap-weighted, meaning that larger companies will have more of an influence on the portfolio than smaller companies.
The fund has been a dependable income generator with a 12-month yield of 6.9%.
Global X Alternative Income ETF (ALTY)
ALTY mirrors the Indxx SuperDividend Alternatives Index. With just $34 million in assets, the fund is relatively small, but it has been delivering a consistent high dividend income since its launch in July 2015.
ALTY invests in a comprehensive mix of traditional stocks and alternative securities that include BDCs, master limited partnerships and preferred stocks. The fund will also enhance income by selling covered calls on the securities it owns.
Shareholders may experience capital appreciation during periods of falling interest rates, but growth is not the primary objective of the fund. The portfolio managers at ALTY focus on delivering superior income with minimum volatility.
The expense ratio for ALTY comes in at 0.50%, and the fund yields 7.1%.
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7 Best High-Dividend ETFs to Buy Now originally appeared on usnews.com
Update 11/27/24: This story was previously published at an earlier date and has been updated with new information.
