6 ETFs with Monthly Dividends

10/26/2018 5:00 am EST

Focus: ETFS

Ned Piplovic

Assistant Editor, Eagle Financial Publications

In my latest screen, I searched for monthly dividend ETFs with above-average dividend yield and reliable dividend income flow. Most of the ETFs have raised their annual dividend payouts for the past several years, asserts fund expert Ned Piplovic, editor of Dividend Investor.

The following list contains six monthly dividend ETFs with dividend yields exceeding 4%, annual dividend increases over the past few years and monthly dividend payout higher above the previous period’s distribution.

Vanguard Long-Term Corporate Bond ETF (VCLT)

The ETF invests primarily in high-quality, investment-grade corporate bonds and comprises 1,861 individual bond holdings as of October 2, 2018. The majority of the bond issuers are in the Industrial (70.5%), Financial (16.8%) and Utilities (12.4%) sectors.

The fund currently yields 4.41% and has a 0.07% gross expense ratio, which is 91% lower than the average expense ratio of funds with similar holdings.

The fund’s share price declined slightly for a small total loss over the past 12 months, with total returns of 15% and 31% over the past three and five years, respectively.

iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB)

EMB ETF had nearly $14.5 billion in net assets and contained 412 individual holdings as of October 2, 2018. The EMB ETF tracks the investment results of the J.P. Morgan EMBI Global Core Index composed of U.S. dollar-denominated, emerging market bonds.

Currently, the funds highest exposure of 6.1% is to fixed income securities in Mexico, with Indonesia (5%), China (4%) and the Russian Federation (4%) rounding out the top four. The remaining share of assets comprises investments in 52 additional countries with shares ranging from 3.9% to 0.2% of total assets.

The ETF charges a 0.40% fee and currently pays a $0.4495 monthly dividend, which is 3.2% higher than last month and is equivalent to a 4.58% yield.

iShares Morningstar Multi-Asset Income ETF (IYLD)

The IYLD fund seeks to track the investment results of the Morningstar Multi-Asset High Income Index. The fund has a portfolio with an asset allocation of 60% bonds, 20% stocks and 20% alternative income sources.

As of October 2, 2018, the ETF allocated $313 million in total net assets across just 11 individual holdings, which are all other iShares ETFs.Currently, more than 52% of the fund’s assets are in U.S.-based equities. U.K.-based equities account for an additional 6%.

The remaining assets are spread across 10 developed countries with no more than 3% exposure each. The fund’s current monthly payout is the highest since mid-2016 and currently offers a 4.93% yield.

iShares iBoxx High Yield Corporate Bond ETF (HYG)

As of October 2, 2018, the HYG ETF had more than $15.8 billion in net assets and contained  997 individual holdings. The ETF invests in liquid, U.S. dollar-denominated, high yield corporate bonds for sale in the United States.

While generally tracking the performance of the Markit iBoxx USD Liquid High Yield Index, the fund might also invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index.

The ETF currently pays a $0.3891 monthly dividend, which is 4.8% higher than the previous month and is equivalent to a 5.11% yield. The 2.4% share price pullback over the past year took away some of the dividend yield gains but still provided a 2.4% total return for the past 12 months. The total returns over the past three and five years are approximately 20%.

iShares Emerging Markets High Yield Bond ETF (EMHY)

The ETF’s current net assets of more than $500 million were spread across 454 individual holdings and exceeded $500 million as of the beginning of October 2018.

This ETF invests in below-investment-grade U.S. dollar-denominated emerging market sovereign debt and the corporate high yield bond market by tracking the performance of the Morningstar Emerging Markets High Yield Bond Index.

The ETF’s share price closed at $45.90 on October 2, 2018. The fund’s current $0.2399 monthly dividend is 8.75% higher than it was in the previous period and corresponds to a 5.12% forward dividend yield.

ProShares High Yield—Interest Rate Hedged ETF (HYHG)

This ETF seeks the return potential of a diversified portfolio of high-yield corporate bonds. The fund tracks the performance of the FTSE High Yield (Treasury Rate-Hedged) Index and targets zero interest rate risk by including a built-in hedge against rising rates by using short positions in U.S. Treasury futures.

Additionally, the fund offers even less interest rate sensitivity than short-term bonds by targeting a duration of zero. As of October 2, 2018, the HYHG fund comprised nearly $180 million in total assets, with its top five holdings representing less than 8% and the top 25 holdings accounting for approximately 30% of total assets.

HYHG’s share price declined initially in the trailing 12 months but has recovered fully since its mid-March 2018 low. With the share price flat, the 5.78% dividend yield accounts for the entire total return over the past year. The total return over the past three years was 24%.

The list of monthly dividend ETFs above ranks the funds primarily by their current forward dividend yield. Investors should conduct their own due diligence to confirm that the funds’ other metrics, such as share-price trend, payout ratios, long-term and short-term total returns, etc., support their portfolio strategies and choose their investment equities accordingly.

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