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The Best ETFs for High Yield Investors: Part 1
07/10/2018 5:00 am EST
Ned Piplovic, ETF expert and editor of DividendInvestor, has compiled a list of the 11 best exchange-traded funds for investors seeking high dividend yields. Here, he looks at the first 6 of these income ETFs.
These ETFs offer high dividend yields, along with potential for significant capital appreciation. In addition to their focus on total returns from diversified equities, these ETFs combine advantages of stocks and mutual funds for the benefit of their investors.
Instead of investing in individual stocks, which carry high risk if that a stock’s share price falls, ETF investors have reduced risk exposure through diversification. However, reduced risk may be a welcome trade-off for investors who take a long-term approach and want to avoid losing money.
While mutual funds offer diversification, they cannot be traded throughout the day when the market is open in the way that investors can with stocks and ETFs. Plus, ETFs have much lower fees, which translate to higher total returns over extended periods. Here are the 11 top dividend ETFs that offer high dividend yields.
#11: Invesco Zacks Multi-Asset Income ETF (CVY)
Dividend Yield: 4.02%
This is a medium-sized value fund that tracks the performance of the Zacks Multi-Asset Income Index and invests at least 90% of its assets in the underlying index.
Financials is the top sector represented in the fund, with a 24% share. Out of the current 149 holdings in the ETF, the top 10 holdings account for just 11% of the invested assets. In addition to the fund’s 4.02% current yield, the share price rose 8.1% over the past 12 months for a total return of 12.4%.
#10: Invesco Variable Rate Preferred ETF (VRP)
Dividend Yield: 4.76%
This fund invests at least 90% of its total assets in the securities that comprise the Wells Fargo Hybrid and Preferred Securities Floating and Variable Rate Index. The market cap-weighted index tracks the performance of its holdings’ preferred stocks and other securities that are functionally equivalent to preferred stocks. The fund’s Total Expense Ratio is 0.50%.
Financials sector equities represent an 80% asset share of the fund’s holdings. The fund’s top three sectors — including Energy and Industrials along with Financials – account for 95% of the fund’s holdings. The top 10 holdings account for less than 20%.
#9: Invesco Financial Preferred ETF (PGF)
Dividend Yield: 5.22%
This fund tracks the performance – before fees and expenses – of the Wells Fargo Hybrid and Preferred Securities Financial Index. The fund’s investment in 89 individual equities equals $1.56 billion in total assets.
The ETF has experienced volatility over an extended period, but the fluctuation stayed within the $17 to $19 a share range over the past five years. The share price declined 3.2% over the past year. However, the total dividend distribution over the same period overcame that drop and turned a small asset depreciation into a 2.1% total return on shareholders investment in the past 12 months.
#8: Invesco Preferred ETF (PGX)
Dividend Yield: 5.89%
Based on The ICE BofAML Core Plus Fixed Rate Preferred Securities Index, the fund generally invests at least 80% of its total assets in fixed rate preferred securities issued in the U.S. domestic market.
More than 90% of the fund’s holdings are concentrated in just three sectors – Financials, Real Estate and Utilities – with the Financials sector’s share exceeding 70% by itself. As approved by the trust’s Board of Trustees, the fund changed its name on June 4, 2018, from PowerShares Preferred Portfolio to its new name of Invesco Preferred ETF.
Nearly two-thirds of the fund’s holdings carry a BBB rating or higher, which is considered Investment Grade by Standard & Poor’s.
While the fund’s share price pulled back 3.5% over the past 12 months, that level of fluctuation is consistent with the fund’s five-year trend of moderate volatility while mostly trading between $14 and $15. However, the company’s dividend income exceeded the share price decline and offered shareholders a 2.1% total return for the year.
#7: First Trust Preferred Securities and Income ETF (FPE)
Dividend Yield: 5.22%
Under normal market conditions, this fund invests at least 80% of its net assets in preferred securities and income-producing debt securities including corporate bonds, high-yield securities and convertible securities.
As of May 31, 2018, nearly 70% of the fund’s $3.5 billion in assets were in Fixed-to-Floating Rate and Fixed-to-Variable Rate Securities, 16% in Fixed Rate Securities, 14% in Floating Rate Securities and less than 1% in Step-up Rate Securities.
U.S. securities accounted for slightly more than half of the fund’s assets. United Kingdom and France each contributed approximately 9% share of assets, with seven additional countries rounding out the remainder. Each of the latter countries individually accounted for less than a 5% share.
The fund’s share price during the past 12 months was down slightly. Thanks to the fund’s dividend payments of nearly $1 per share in the past year, its total return rose 1% during the past 12 months.
That result shows the value of owning dividend-paying equities, which can turn small share-price losses into total return gains, as well as boost total returns beyond share-price appreciation.
#6. iShares S&P US Preferred Stock Fund (PFF)
Dividend Yield: 5.58%
This fund tracks the investment results of the S&P U.S. Preferred Stock Index and generally will invest at least 90% of its assets in the component securities of the underlying index. According to the Morningstar Style Box evaluation, this is a Small Growth fund.
The fund’s $16.3 billion in total assets is spread across 300 individual holdings. The top three sectors by share of assets are Banks (34%), Diversified Financials (25%) and Real Estate (14%).
The current share price is 4% below its level from 12 months earlier. However, a look at the long-term share price movement reveals that the price has been trading with similar fluctuations between $37 and $40 a share over the past five years. The combined effect of the share-price movement and the total dividend distribution over the past 12 months is a net total return of 1.2%.
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