Inflation is still eating away at people’s budgets, as only the pace has slowed, that too at a snail’s pace. Monthly income ETFs like the Pacer Metaurus US Large Cap Div Multiplier 400 ETF (NYSEARCA:QDPL), Amplify CWP Enhanced Dividend Income ETF (NYSEARCA:DIVO), and AAM S&P 500 High Dividend Value ETF (NYSEARCA:SPDV) are becoming must-buys, as even Treasuries are about to lose their luster with interest rate cuts.
Broad-market indexes pay very slim dividends of 1% or even less. This means having a dedicated set of ETFs with high yields and monthly payout frequencies is essential, especially if dividend income is involved in covering your expenses. They can boost your monthly income massively, even if you allocate a small portion of your portfolio to them.
The following three are some of the best vehicles for doing so as they come with great yields and fewer trade-offs than their peers.
Pacer Metaurus US Large Cap Div Multiplier 400 ETF (QDPL)
If you want exposure to capital appreciation and a fat yield on top, a covered call ETF like JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) is often what first springs to mind. However, the Pacer Metaurus US Large Cap Div Multiplier 400 ETF may be worth going for instead.
This ETF gives you more upside exposure over the long run by using a futures-based strategy. It does not systematically sell call options that cap gains. Instead, it trades some S&P 500 exposure for leveraged dividend exposure.
The benefits are that you don’t lag behind as much during bull markets. And just like JEPI, you will take a hit when the rally ends, but QDPL will be able to recover much quicker and keep giving you juicy returns.
JEPI is yet to recover to even its 2021 peak, whereas QDPL is up significantly since then.
QDPL comes with a 5.67% yield, with a monthly payment frequency. The expense ratio is 0.60%, or $60 per $10,000.
Amplify CWP Enhanced Dividend Income ETF (DIVO)
The Amplify CWP Enhanced Dividend Income ETF does include covered calls, but it is not as aggressive. Most covered call ETFs come with the risk that you’ll end up lagging the market for long periods of time if there’s a downturn. The capped upside makes it much harder for you to bounce back.
However, DIVO is much more conservative with its covered call approach. It opportunistically writes them on certain portfolios of stocks, and it may selectively repurchase those options. The target is to get 2% to 3% from dividends directly and another 2% to 4% on top of those with the options.
In the end, you get an ETF that is very well-rounded, with a record of strong gains. It has actually outperformed higher-yielding peers and is up 12.4% in the past year, even without counting dividends.
DIVO has 30 holdings in total, with the top 10 constituting a little over 50% of the entire ETF. RTX Corp (NYSE:RTX | RTX Price Prediction) is its largest holding with a 5.38% weighting.
You get a 4.56% yield and a monthly payout frequency. The expense ratio is 0.56%, or $56 per $10,000.
AAM S&P 500 High Dividend Value ETF (SPDV)
The AAM S&P 500 High Dividend Value ETF gets little love despite being a very well-rounded ETF with lots of potential. This ETF focuses on stocks that pay high dividend yields with a sustainable payout ratio while being attractively valued. It picks the top 5 qualifying stocks from each of the 11 sectors in the S&P 500 and gives them equal weight.
In essence, you get exposure to undervalued, high-dividend-paying large-cap stocks that have solid fundamentals for continuing those dividends.
The biggest holding is Newmont (NYSE:NEM) at 2.93%, followed by CVS Health (NYSE:CVS) at 2.4%. It has 56 holdings, and its top 10 holdings are around ~23% of the whole portfolio. The sector breakdown is very interesting. Minus the Communication and Basic Material sectors, almost every sector has a 10% weighting ±2%. No other ETF of this type gets you a similar diversified composition while paying a healthy yield monthly.
SPDV comes with a 3.84% dividend yield. Payout frequency is monthly, with the expense ratio being 0.29%, or $29 per $10,000.
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