Generating a steady and hefty stream of income is a key factor in any investing strategy. And to reach this goal, many turn to dividend paying stocks. A dividend is a regular payment a company makes to shareholders out of its profits.
But it can be difficult and time consuming to analyze and handpick individual dividend paying stocks. That’s why many investors seek out dividend paying exchange-traded funds (ETFs). These professionally managed funds invest in a handful of dividend paying stocks, offering instant diversification. But as with dividend stocks, dividend ETFs have varying yields.
Some key dividend ETFs are generating around 2% to 3% yields. But we found some paying more than 5%. So let’s take a closer look.
iShares Preferred and Income Securities ETF (PFF)
The iShares Preferred and Income Securities ETF (PFF) generates a yield of about 6.46%. It invests in a variety of stocks, as well as preferred stocks which share some of the characteristics of bonds.
PFF’s main holdings are in the financial, industrial and utilities sectors. Its top holdings include companies like Boeing, Wells Fargo and Citigroup.
Additionally, the fund holds net assets of $14.65 billion. And it has a competitive expense ratio of 0.45%.
Global X SuperDividend U.S. ETF (DIV)
The Global X SuperDividend U.S. ETF (DIV) pulls in a yield of about 6.70%. And it accomplishes this by investing in the 50 highest dividend paying companies in the United States. But DIV also screens companies that have low betas compared to the S&P 500 index. This could provide low volatility returns.
The fund has maintained its monthly distributions for the past 12 years. Its top holdings are in the utilities, energy and real estate sectors. Additionally, it holds net assets of around $653.32 million. Moreover, it also has a competitive expense ratio of 0.45%.
iShares Emerging Markets Dividend ETF (DVYE)
The iShares Emerging Markets Dividend ETF (DVYE) has an impressive yield of 9.59%. It can provide your portfolio with global diversification. The fund invests in 100 companies in emerging market countries. These companies are diversified across various sectors including financials, energy and utilities.
The fund has net assets of about $942.72 million. And it has an expense ratio of 0.50%. In addition, DVYE has an overall Morningstar rating of three stars and has earned its silver medal.
Invesco KBW Premium Yield Equity REIT ETF (KBWY)
The Invesco KBW Premium Yield Equity REIT ETF (KBWY) operates a bit differently than the other ETFs on our list. It invests in real estate investment trusts (REITs). These are companies that own and operate income-generating real estate like apartment complexes, shopping malls and warehouses. REITs also pay dividends from the income they generate. And the KBWY has a yield of around 9.50%. The fund aims to invest in small and mid cap equity REITs that have competitive dividend yields. Moreover, the fund holds net assets of about $252.07 million. Additionally, it has an expense ratio of 0.35%.
But while the KBWY was included in this list for its high yield, it’s important to note its performance has not been too impressive. It has delivered a negative 1-year return of around 22.11%. So you should carefully execute your due diligence when deciding whether to include KBWY in your portfolio.
Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD)
The Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD) has a yield of around 6.70%. It invests in small cap companies that have historically generated high dividend yields with low volatility in the past 12 months. Its main holdings are in the financial, real estate and utilities sectors. The fund’s holdings are rebalanced and reconstituted semi-annually on the last business day in January and July.
Moreover, the XSHD has net assets of $74.1 million. And it carries an expense ratio of 0.30%.
How to choose the right dividend paying ETF
While these are some of the highest yielding ETFs we found, yield isn’t the only thing. In fact, chasing a high yield can pose some risk. Some struggling companies offer higher yields to attract investors. And keep in mind that ETF fund managers can lower or eliminate yields at any time. So it’s also important to look at other factors.
For instance, take a look at the fund’s past performance and its holdings. A well diversified fund invests in stocks across many sectors. And you should also keep an eye on expense ratios as high fees can eat away at your returns.
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