5 High Yield Dividend ETFs for Your Portfolio-2019-10-10
By: Ned Piplovic,
Since their introduction in the mid-1990s, the number of exchange-traded funds (ETFs) has expanded exponentially and income investors now can choose from thousands of high yield dividend ETFs to bolster their dividend income.
As an established investment form, the total number of mutual funds increased 17% between 1999 and 2017. During the same period, the number of available ETFs increased more than 63-fold. The growth of new ETFs subsided to just 8.3% in 2018. However, that growth rate was still more than three-fold higher than the 2.6% growth rate for new mutual funds.
The variety of available ETFs allows investors to choose funds that offer sector specific ETFs, ETFs diversified across sectors, ETFs that seek high capital gains or targeting above-average dividend income distributions like high dividend ETFs.
As with every investment decision, individual investors must conduct their own equity analysis and due diligence to ensure that the selected high dividend ETFs align well with the individual portfolio strategies. Sorted in ascending order by their current forward dividend yield, here are five of the high yield dividend ETFs to consider.
5 High Yield Dividend ETFs for Your Portfolio #5
SPDR Bloomberg Barclays Convertible Securities ETF (NYSE:CWB)
Dividend Yield: 5.3%
This fund tracks the composition and performance of the Bloomberg Barclays U.S. Convertible Liquid Bond Index, which seeks to provide exposure to the market of U.S. convertible securities with an issue amount of at least $350 million and a par amount outstanding of at least $250 million. As of Oct. 7, the fund had more than $4 billion in net assets allocated across 190 individual holdings.
The vast majority of the fund’s holdings (82.3%) comprise corporate bonds in the Industrial sector. The last fifth of holdings splits assets between Financial sector bonds (10.5%) and bonds of companies in the Utilities sector (7.1%). Additionally, the fund holds approximately 0.1% of its assets in cash.
The fund’s share price and dividend distributions advanced at similar rates over the past few years. However, the share price growth was slightly higher which pushed the current 5.3% yield 6% below the fund’s own 5.65% average yield over the past five years. The share price and dividend income payouts have combined to deliver a total return of nearly 8% over the trailing 12-month period. Over the past three years, the total return has topped 28% and exceeded 36% over the last five years.
5 High Yield Dividend ETFs for Your Portfolio #4
SPDR Wells Fargo Preferred Stock ETF (NYSE:PSK)
Dividend Yield: 5.45%
With nearly $1 billion in total net assets, this fund seeks to provide investment results that correspond generally to the total return performance of the Wells Fargo Hybrid and Preferred Securities Aggregate Index before fees and expenses. As of Sept. 30 the fund’s assets were allocated across 162 individual holdings. The allocation is fairly balanced, with only one holding accounting for more than 2% of the ETF’s asset shares. The top 10 holdings account for 15.8% of total net assets and the top 25 holdings account for less than one third of total net assets.
At the beginning of 2018, the fund switched from paying quarterly dividends to a monthly distribution schedule. The monthly dividend was $0.20 for the first 11 months, with a slightly higher year-end distribution in December. A double-digit-percentage share price advancement since the 52-week low in late-December 2018 pushed the fund’s current yield is 5% below the fund’s own 5.62% yield average over the past five years.
After the brief pullback in late 2018, the share price’s double-digit-percentage growth, combined with dividend distributions, delivered a total return of nearly 13% over the trailing 12 months. This ETF’s three-year total return was just slightly higher at 13.3%. However, over the past five years, the ETF offered a total return of more than 30%.
5 High Yield Dividend ETFs for Your Portfolio #3
VanEck Vectors Fallen Angel High Yield Bond ETF (NYSE:ANGL)
Dividend Yield: 5.47%
This fund attempts to replicate the price and yield performance of the ICE BofA ML U.S. Fallen Angel High Yield Index. This index is comprised of below-investment grade corporate bonds that are denominated in U.S. dollars, issued in the U.S. domestic market and were rated as investment grade at the time of issuance.
The fund’s 197 holdings combine for nearly $1.2 billion in total assets. Among the holdings, nearly 75% are U.S. securities. Most of the remaining holdings comprise investments in Italy (6.52%) and the United Kingdom (6.27%). Japan (5%), Germany (3%) and Canada (1.34%) are the only other countries with a substantial share of assets. Equities from Sweden, China, Finland and Ireland contribute less than 1% each.
A recent share price uptick of nearly 10% suppressed the fund’s current 5.47% yield 4% below the fund’s own 5.64% average yield over the last five years. While pushing the yield down, the share price advancement contributed to a combined total return of nearly 7% over the past 12 months. However, the three-year total returns were nearly 17%. Furthermore, the combined total returns over the last five years are approaching 35%.
5 High Yield Dividend ETFs for Your Portfolio #2
VanEck Vectors Emerging Markets High Yield Bond ETF (NYSE:HYEM)
Dividend Yield: 6.20%
The VanEck Vectors Emerging Markets High Yield Bond ETF targets to replicate the composition, the price and yield performance of the ICE BofA ML Diversified High Yield U.S. Emerging Markets Corporate Plus Index before any fund fees and expenses. The index comprises U.S. dollar-denominated bonds issued by non-sovereign emerging markets issuers that are rated below investment grade and that are issued in the major domestic and Eurobond markets.
As of Oct. 7, the fund had $305.7 million in total assets distributed across 592 individual holdings. China, with 12.21% share of total assets, Brazil (9.56%) and Turkey (9.20%) combine for nearly a third of the fund’s assets and are the only three countries whose individual shares exceed 6%. The top three sectors, Financial with 35.5%, Energy with 14.6% and Basic Materials with 11.5% account for more than 60% of the fund’s total assets.
The fund’s current $0.12 monthly dividend distribution converts to a $1.44 annualized payout and a 6.2% forward dividend yield, which is in line with the fund’s 6.29% average yield over the past five years. The combined gains from dividend distributions and asset appreciation delivered an 8.63% total return over the past 12 months. The total return over the past three-year period was slightly higher at nearly 12%. Furthermore, the total return exceeded 21% over the last five years.
5 High Yield Dividend ETFs for Your Portfolio #1
Invesco CEF Income Composite ETF (NYSE:PCEF)
Dividend Yield: 7.26%
The Invesco CEF Income Composite ETF Fund tracks the performance of the S-Network Composite Closed-End Fund Index SM. The Invesco fund seeks to invest at least 90% of its total assets in the securities included in S-Network the Index. The Fund is a “fund-of-funds,” as it invests its assets in the common shares of funds included in the Index rather than in individual securities. The Index currently includes closed-end funds that invest in taxable investment grade fixed-income securities, taxable high yield fixed-income securities and others that utilize an equity option writing strategy. The Invesco fund mirrors the S-Network Index’s quarterly rebalancing schedule.
As of Oct. 7, the fund’s 135 underlying holdings combine to nearly $800 million in net assets. The fund’s total portfolio comprises of underlying holdings evenly distributed — approximately one-third each — among bonds, high yield bonds and option income. The holding with the highest individual share, Eaton Vance Tax-Managed Global Diversified Equity Income Fund (NYSE:EXG), accounts for just 2.86% share of total assets. Furthermore, the top ten holdings combine for just slightly less than one-fifth (22%) of the fund’s total assets.
The fund’s annualized $1.63 distribution amount corresponds to a 7.26% forward dividend yield. Because the 16% asset appreciation since the 52-week low in late-2018 outpaced the dividend distribution growth, the current yield trails the fund’s own 7.73% five-year yield average by approximately 6%.
The one-year asset appreciation added a few percentages to deliver a total return of nearly 8% for the previous 12-month period. The total return over the three-year period approached 21%. Additionally, the fund delivered a total return of more than 27% over the past five years.
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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.