If you’re an income investor like me, you’ll always be on the lookout for ways to make your money work for you. Every time I make an investment, I hope to see it grow, but I also want to keep making money from it. This is why I love dividends. It pays me for something I never have to show up for. However, the current market situation is uncertain, and instead of risking money on individual stocks, I’d recommend investing in exchange-traded funds (ETFs).
They are professionally managed funds that invest in a basket of stocks and generate passive income. If you can invest $100,000 evenly across four ETFs I discuss here, you can enjoy $500 a month in passive income. This is $6,000 a year, without having to do anything or take any kind of risk. My strategy is to invest in dividend ETFs across different geographies, sectors, and stocks, so even if one is under pressure, the others will keep going. Here are my four picks.
Global X SuperDividend US ETF
A simple and straightforward ETF, the Global X SuperDividend U.S. ETF (NYSEARCA:SDIV) invests in only 51 stocks and holds the highest-yielding US dividend stocks. The stocks are weighted based on income and not on market cap. This means you get to own businesses that have steady cash flow and can sustain the dividends.
It holds REITs, utilities, energy, and financial companies that regularly return money to shareholders. SDIV has a yield of 6.13% and pays $0.19 in dividends each month. Hence, an investment of $25,000 will generate $128 per month.
It has a payout ratio of 87.26%, which shows that your dividend is well covered. In a rate cut environment, an ETF like SDIV could see success since the lower rates reduce borrowing costs for sectors like utilities and REITs, enhancing their valuation. The fund has an expense ratio of 0.58%.
Amplify CWP Enhanced Dividend Income ETF
Another excellent dividend ETF, the Amplify CWP Enhanced Dividend Income ETF (NYSEARCA:DIVO) creates a portfolio of top-quality, large-cap companies that have a strong earning history. It doesn’t just focus on the yield but looks at the overall businesses and identifies blue-chip companies that have a history of strong earnings. These are blue-chip names that have managed to sustain their dividends even in tough markets.
The fund uses a covered call strategy to write calls on stocks that generate a premium and ultimately, enhance the yield. It has a yield of 6.26% and pays a monthly dividend of $0.18 per share. This translates to roughly $130 per month in income when you invest $25,000.
Even in a period of downturn, the ETF will hold up better than the other funds due to the quality of its holdings. It picks companies that rarely cut dividends and have the ability to recover quickly.
Invesco S&P 500 High Div Low Volatility ETF
The Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA:SPHD | SPHD Price Prediction) aims to invest in high dividend stocks with low volatility. It has a yield of 4.60% and an expense ratio of 0.30%. With an investment of $25,000 in the ETF, you get about $95 in dividends each month.
The fund invests in 55 stocks and has no allocation towards technology, setting itself apart from all the other tech-focused funds available today. It has a portfolio of defensive stocks and REITs that regularly reward investors. SPHD pays a dividend of $0.20 each month.
With regard to sector-wise allocation, it invests 20% in consumer staples, 19.9% in real estate, 14.3% in financials, and 13% towards utilities. SPHD has established itself as one of the solid dividend ETFs for long-term investors.
JPMorgan Equity Premium Income ETF
The JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) aims to offer steady passive income through a covered call strategy, and its core holdings include the top blue-chip stocks. It builds a defensive equity portfolio and writes out-of-the-money call options to generate a higher yield. JEPI has a yield of 7.56%, which translates to $157 in monthly dividends. The fund has an expense ratio of 0.35%.
Its annual dividend payout is $4.76 per share. JEPI holds some of the most popular dividend-paying giants, such as Johnson & Johnson, Ross Stores, NextEra Energy, and AbbVie.
While the fund may not deliver capital appreciation, it offers one of the best yields in the industry. Since it invests in blue-chip companies that have paid dividends for years, there’s little risk of a dividend cut. An improvement in the economic conditions could lead to higher payouts in the future.
Allocating $100,000
By splitting $100,000 equally across these four funds, you can earn about $510 per month or $6,120 annually. This is only the dividend income; you will also enjoy capital appreciation on your ETF investments. These dividend ETFs will generate more than a high-yield savings account.
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