Most dividend stocks and dividend ETFs pay quarterly, and this creates awkward gaps if you’re trying to cover monthly expenses. It’s thus a good idea to look into monthly dividend ETFs like Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA:SPHD | SPHD Price Prediction), SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA), iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT). They align much better with most people’s rhythm of life, and they also compound faster than quarterly payouts.
You’d want to hold the best-in-class monthly dividend stocks, as you can then make them serve two purposes at once: both defense and income.
This may mean sacrificing a little on the yield and on the upside during rallies, but these ETFs will start making a lot of sense during downturns. Even if you are a growth investor, it’s worth having monthly dividend ETFs to hold together your portfolio and compound on the side.
Let’s take a look.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
The Invesco S&P 500 High Dividend Low Volatility ETF tracks the S&P 500 Low Volatility High Dividend Index. Essentially, the index looks at low-volatility dividend stocks from the S&P 500 and selects 50 stocks that fit its criteria.
It then weights by yield with a cap of 3% per stock and 25% per sector. It rebalances semi-annually in January and in July.
SPHD is often seen as a monthly alternative to the Schwab US Dividend Equity ETF (NYSEARCA:SCHD). It is definitely worth considering if you want a monthly income, as SPHD has kept up quite well and comes with a slightly higher dividend yield, though the 0.30% expense ratio offsets this.
The chart isn’t pretty and has been flat for quite a while, but this is due to the enormous tech rally that widened the gap between cash cow companies and growth companies. When the pendulum swings the other way, SPHD will be able to start outperforming again. Interest rates are now in the 3.5% to 3.75% band from the Fed. Two more cuts, and SPHD’s 3.83% will start looking extremely attractive.
SPDR Dow Jones Industrial Average ETF Trust (DIA)
The SPDR Dow Jones Industrial Average ETF Trust tracks the Dow Jones Industrial Average (DJIA), often just called “the Dow.” It invests in all 30 major U.S. companies that make up the Dow, and it’s a great way to diversify beyond the Mag 7 stocks and get exposure to financials, industrials, and more under-the-radar tech stocks. You get a small monthly dividend on top to sweeten the deal.
It’s one of the oldest and most popular ways to bet on or hedge against the performance of America’s blue-chip large companies.
DIA has started performing very well in the past few months. It is up over 13% in just the past 6 months due to investors rotating out of overvalued tech stocks and putting their money in more well-established names, like the ones in the Dow.
DIA comes with a 1.45% yield and has an expense ratio of 0.16%, or $16 per $10,000.
iShares 20+ Year Treasury Bond ETF (TLT)
The iShares 20+ Year Treasury Bond ETF gives you exposure to long-term U.S. government bonds.
It holds a portfolio of U.S. Treasury bonds with remaining maturities of more than 20 years and aims to closely track the performance of the ICE U.S. Treasury 20+ Year Bond Index (before fees and expenses).
These are very safe bonds backed by the U.S. government, with virtually no credit risk. I expect TLT to get you both the 4% monthly yield plus 10-15% upside in the coming months, or even more if there’s a recession.
This is because each Fed rate cut reduces new Treasury yields, which in turn makes long-term bonds with higher yields much more attractive to the market. Wall Street is likely to become hungry for yield and pay a premium for the safety if the Fed cuts more aggressively. The 2008 recession caused TLT to jump from $95 to over $122 in a few months.
It is sitting below $88 today, but can go past $120 if rates drop below 3%. If interest rates fall to ultra-low levels as a result of a recession, it could cross $160+ as it did in 2020.
The expense ratio is just 0.15%, or $15 per $10,000.
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