12 High Dividend ETFs
By: Ned Piplovic,
Exchange-traded funds — ETFs — continue gaining popularity because they combine favorable characteristics of stocks and mutual funds in addition to many offering high dividend yields for income-seeking investors.
ETF shares offer the convenience of trading easily like stocks on various exchanges and also have additional advantages, such as liquidity and tax efficiency. Alternatively, ETFs also offer easy diversification generally associated with mutual funds. Therefore, ETFs provide easy and convenient ways to invest in equities that offer simple and inexpensive opportunities for investors to diversify their portfolios.
While offering a similar level of diversification as mutual funds, ETFs allow investors to trade shares throughout the day like stocks, which is not possible with mutual funds. Many ETFs achieve diversification by tracking well known market indices, such as the Dow Jones Industrials Index or the S&P 500 Index.
Investors could achieve higher yields by investing in individual equities. However, this approach also exposes investors to higher level of risk. Therefore, investing in dividend-paying ETFs minimizes total exposure by spreading risk across all the holdings in the fund.
ETFs can range from just a few to hundreds and thousands of individual equities. Additionally, while all dividend-focused ETFs can hold all dividend-paying equities, other ETFs hold a combination of equites where some pay dividends and some equites do not pay any dividend distributions.
Compared to stocks, bonds and mutual funds on other investment vehicles, ETFs are relatively new. Mutual funds outnumbered ETFs more than 11,000-to-one when ETFs emerged in the late 1990s. However, while the total number of mutual funds increased approximately 20% over the past two decades, the number of ETFs increased nearly 65-fold in the same time frame. While mutual funds still outnumber ETFs, the margin is only approximately three-to-one and closing.
With more than 6,500 ETFs globally and more than 2,000 just in the United States, investors have a wide selection from which to choose and find funds best suited for their specific portfolio goals and strategies. The simplest way to choose ETFs for this list would be to just select top dozen funds sorted by high dividend yields.
However, high dividend yields can be misleading. A high yield could be just a result of falling share price. Therefore, to eliminate funds with falling share price, one of the requirements for inclusion in the list below is that the total return over the trialing 12-month period exceeds the dividend funds current yield. This ensures that the fund’s current share price is at least slightly higher than one year ago and that capital gains delivered at least a small portion of one-year total returns.
Furthermore, most ETFs offer market capitalizations that is significantly lower than large-cap companies and are not expected to compete on that size level. However, to be eligible for inclusion on the list of ETFs with high dividend yields below, a fund had to have at least $1 billion market capitalization. Also, each ETF had to have delivered at least four distributions in 2019.
With those three criteria in mind, here are the 12 ETFs that pay high dividend yields.
iShares Long-Term Corporate Bond ETF (NYSE:IGLB)
This fund tracks the performance of the CE BofA ML 10+ Year US Corporate Index. As of January 8, 2020, the fund’s 2,230 individual equities equaled to nearly $2 billion in total assets. The ETF’s share price rose more than 17% over the trailing 12-month period. Combined with the 3.73% dividend yield, the ETF has rewarded its investors with a 22.4% total return over the past year. Unlike the smooth rise over the past year, the share price experienced more volatility in the previous few years which limited the three-year and five-year total returns to just 25% and 26.5%, respectively.
Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD)
The Invesco S&P 500® High Dividend Low Volatility ETF tracks the composition and results of the S&P 500 Low Volatility High Dividend Index. The fund allocated nearly $3.3 billion across 50 individual holdings. Only one holding — AT&T (NYSE:T) — had a share of assets that exceeded 3%.
The ETF used its asset appreciation and stead dividend distribution to reward its stakeholders with a 7.8% total one-year return. Over the more extended periods of the last three and five years, the fun delivered 14% and 22% total returns, respectively.
Invesco Fundamental High Yield® Corporate Bond ETF (NYSE:PHB)
The Invesco Fundamental High Yield® Corporate Bond ETF (Fund) is based on the RAFI® Bonds US High Yield 1-10 Index (Index). The fund’s 227 individual holdings combine for nearly $1.2 billion in total assets. Additionally, the top three sectors — Consumer Discretionary, Energy and Industrials combine for nearly half of the fund’s total assets. Over the past year the funds dividend income distribution and capital gains offered a one-year total return in excess of 11%. The three-year total return was more than 14% and the five-year combined returns are approaching 25%.
ETRACS Monthly Pay 2xLeveraged S&P Dividend ETN (NASDAQ:BSJK)
This fund seeks to track the investment results, before fees and expenses, of the Nasdaq Bulletshares USD High Yield Corporate Bond 2020 Index. As od January 7, 2020, the fund had total assets of almost $1.2 billion were allocated across 118 components. Moore than half of the fund’s current assets were in one of the top three sectors — Communications Service Information Technology and Financials. The performance of the underlying equities translated to a 5% total return over one year, Furthermore, the total return over the last three years was 11% and 16% over the five-year period.
iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ:EMB)
This ETF tracks the composition and performance of the J.P. Morgan EMBI Global Core Index. As of January 8, 2020, the fund had approximately $15.7 billion in total assets allocated across 481 individual equities. No individual equity accounts for more than 0.85% of total assets. Furthermore, even aggregated by the country of issuance, only three — Mexico (5.55%), Indonesia (4.79%) and Saudi Arabia (4.42%) — of the 59 countries represented in the fund account individually for more than 4% of total assets.
After trading relatively flat from 2015 to 2018, the share price setup for a gain of more than 11% during 2019. These gains combined with dividend distributions for total returns of 13.2% over the trailing 12-month period, 16.6% over the last three years and nearly 29 over the last five years.
Invesco Emerging Markets Sovereign Debt ETF (NYSE:PCY)
The Invesco Emerging Markets Sovereign Debt ETF tracks the composition and results of the DBIQ Emerging Market USD Liquid Balanced Index. As of January 7, 2020, the ETF held almost $4 million in total assets allocated across 115 individual holdings. Only government bonds from Argentina combine for more than 3% of the fund’s total assets. All other countries represented in the fund are below the 3% level. Share price volatility delivered one and three-year total returns at very close levels of 5.6% and 16.6%, respectively. However, the longer-term returns over the past five years offered nearly 30%.
iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG)
The iShares iBoxx $ High Yield Corporate Bond ETF uses the Markit iBoxx USD Liquid High Yield Index as its basis. As of January 8, 2020, the fund had total assets of almost $20 billion million allocated across 993 individual holdings.
After eight years of declining annual dividends, the ETF stabilized its annual payout and assisted by asset appreciation of nearly 5% delivered to its shareholders a total return of 11% over the last year. The three-year total return came in at more than 16% and the five-year total return is approaching 25%.
Invesco Senior Loan ETF (NYSE:BKLN)
Based on the S&P/LSTA U.S. Leveraged Loan 100 Index, the fund normally invests at least 80% of its total assets in the component securities that comprise the Index. Nearly $9 billion in total assets is spread across 118 individual securities. While each component is below 2% share, the top 10 components combine for a 17% cumulative share of total assets. The 5% –plus dividend income yield provided most of the 6.2% one-year total returns. The share price traded mostly sideways for the past few years and limited the three and five-year total returns to 10% and 16%, respectively.
VanEck Vectors Fallen Angel High Yield Bond ETF (NASDAQ:ANGL)
The fund attempts to replicate the price and yield performance of the ICE BofA ML U.S. Fallen Angel High Yield Index. The fund’s 197 holdings combine for nearly $5 billion in total assets. Among the holdings, nearly 75% are United States securities. The remaining holdings comprise investments in Italy, United Kingdom, Japan, Germany, Canada, Sweden, China, Finland and Ireland.
A share price uptick in 2019 pushed the 6.3% dividend into a total return of 14% over the trailing 12-month period. The three-year return was nearly 20% but the five year total return was nearly 43%.
iShares Preferred & Income Securities ETF/iShares Trust (NASDAQ:PFF)
This ETF uses the ICE Exchange-Listed Preferred & Hybrid Securities Index as a benchmark. As of January 8, 2020, had more the $17 billion of the fund’s total assets distributed across 490 individual holdings. The included components represent more than 95% of United States-based equities and barely 1% are equities based in the United Kingdom. Individually, only Broadcom, Inc. (NASDAQ:AVGO) has more than a 2% share of total assets. The top 10 equities represent cumulatively only 13.5% of total assets.
The rising share price and the dividend income distributions combined to deliver 13% total return over the trailing one-year period. The three-year total return exceeded 16%. Furthermore, the total return was 22.5% over the last five years.
iShares 0-5 Year High Yield Corporate Bond ETF (NYSE:SHYG)
The SHYG ETF had more than $3.6 billion in net assets and contained 628 individual holdings, as of January 8, 2020. The iShares 0-5 Year High Yield Corporate Bond ETF seeks to track the investment results of Markit iBoxx USD Liquid High Yield 0-5 Index, which invests in U.S. dollar-denominated, high-yield corporate bonds with remaining maturities of less than five years.
The top 10 equities by share account for approximately 15% of the entire fund and the share of no single equity exceeds 2%. The combined total return over the trailing 12-month period was nearly 8% and the three-year return is approaching 14%. Also, the total return over the last five years exceeded 22%.
JP Morgan Emerging Mkts Loc Currency Bond ETF (NYSE:EMLC)
With nearly $5 billion in assets under management, the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF seeks to replicate the price and yield performance of the J.P. Morgan GBI-EM Global Core Index. The index comprises bonds issued by emerging market governments and denominated in the local currency of the issuer. The top ten of the ETF’s 296 current holding account for 13.4% of the fund’s total assets. The fund has a current yield combined with a recovering share price to deliver a 6.4% total return over the past year and a 14% three-year total return.
Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.
In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.