6 Monthly Dividend ETFs for your Investment Portfolio
By: Ned Piplovic,
While exchange-traded funds (ETFs) offer individual investors easy diversification, steady returns and low fees, monthly dividend ETFs offer the additional benefit of a reliable cash flow for income-seeking investors.
Some investors will undoubtedly choose mutual funds for their ease of management and diversification. While mutual funds certainly offer some advantages, monthly dividend ETFs offer easier access and steady income payments, which makes them a superior choice for income-seeking investors.
ETFs can be sold and bought continuously throughout the trading session just like stocks, unlike mutual funds, which can be traded only after the close of trading each day. Additionally, ETFs offer investors much greater transparency. Even if fund managers trade underlying securities, mutual funds still report their holdings only once every quarter, which means that investors work with information that is more than two months old when selecting their investments. However, ETF information is always current, as such funds report their holdings on a daily basis.
Furthermore, mutual fund management fees can be significantly higher than the fees that ETFs charge. While fees are only small fractions of the fund’s value, even a small percentage difference in fees can result in significantly higher total returns when compounded over long periods.
Using the ETF Directory at DividendInvestor.com, I searched for monthly dividend ETFs with above-average dividend yield and reliable dividend income flow. The list below contains six monthly dividend ETFs with dividends of approximately 4%, or more.
6 Monthly Dividend ETFs for your Investment Portfolio: #6
Vanguard Long-Term Corporate Bond ETF (NASDAQ:VCLT)
Forward Dividend Yield: 4.0%
The ETF invests primarily in high-quality, investment-grade corporate bonds. As of October 29, 2019, the fund’s 2,052 individual bond holdings had a combined total net asset value of $4.7 billion. Nearly all of the fund’s current net assets (98.9%) are allocated across bond issuers in just three market sectors — Industrials (69.4%), Financials (17.3%) and Utilities (12.2%).
After declining more than 13% in 2018, the fund’s share price reversed direction and has gained more than 17% over the trailing 12 months. The asset appreciation and dividend income combined for a one-year total return of nearly 22% and almost 30% over the past five years.
6 Monthly Dividend ETFs for your Investment Portfolio: #5
iShares iBoxx High Yield Corporate Bond ETF (NYSEArca:HYG)
Forward Dividend Yield: 5.23%
As of October 29, 2019, the HYG ETF had nearly $20 billion in net assets spread across 984 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.
After eight consecutive years of declining annual dividends, the ETF is on track to deliver a second consecutive year of annual dividend increases. The current $4.56 annualized dividend payout corresponds to a 5.23% forward dividend yield and is in line with the company’s own five-year yield average. The share price declined slightly during the overall market correction in December 2018 but has gained nearly 10% since the beginning of 2019.
6 Monthly Dividend ETFs for your Investment Portfolio: #4
iShares Morningstar Multi-Asset Income ETF (Cboe BZX:IYLD)
Forward Dividend Yield: 5.23%
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 29, 2019, the ETF allocated nearly $400 million of its current total net assets into just 10 individual holdings. All 10 of the fund’s current holdings are iShares ETFs.
Currently, nearly 52% of the fund’s investments comprise U.S.-based holdings. Equities based in the United Kingdom and the Russian Federation contribute an additional 5% combined. Nine additional countries contribute holdings to the fund. However, no other countries contribute more than 2.5% of the fund’s total assets individually. The fund’s $0.19 current monthly dividend is the highest monthly payout since late 2014.
6 Monthly Dividend ETFs for your Investment Portfolio: #3
iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ:EMB)
Forward Dividend Yield: 5.42%
As of October 29, 2019, the EMB ETF had $14.4 billion in net assets under management and allocated across 481 individual holdings. 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 fund’s highest exposure of 5.5% is to fixed income securities in Mexico, with Indonesia (4.8%), Saudi Arabia (4.5%), the Russian Federation (3.8%) and Turkey (3.8%) rounding out the top five. Securities from these five countries account for one-third of the fund’s total holdings and nearly 30% of the fund’s assets.
The remaining 70% of the fund’s assets comprise investments in 55 additional countries with individual asset shares below 3.8%. The ETF’s current annualized dividend payout is $6.12. This annual distribution corresponds to a 5.42% forward dividend yield, which is more than 12% above the fund’s own 4.83% five-year yield average. The ETF delivered a total return of nearly 13% over the trailing year.
6 Monthly Dividend ETFs for your Investment Portfolio: #2
ProShares High Yield Interest Rate Hedged ETF (NYSEArca:HYHG)
Forward Dividend Yield: 6.27%
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 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 29, 2019, the HYHG fund comprised nearly $120 million in total assets, with its top five holdings representing less than 8% and the top 25 of 158 current holdings accounting for approximately 30% of total assets.
HYHG’s share price declined 5.5% between its 52-week high in early April and early October. However, since early October, the share price recovered more than 40% of those losses and is trending higher. Because of the overall market correction in late 2018, the current share price is 2.7% lower than it was last year. However, year to date, the share price advanced 5.1% and has combined with the dividend income payouts for a total return of 10.6% since the beginning of the year.
6 Monthly Dividend ETFs for your Investment Portfolio: #1
iShares Emerging Markets High Yield Bond ETF (CBOE BZX:EMHY)
Forward Dividend Yield: 6.94%
The ETF’s current net assets were spread across 513 individual holdings and exceeded $330 million as of the beginning of October 29, 2019. 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. Holdings in just four of the current 41 countries represented in the ETF account for half of the fund’s current assets — Brazil (19%), Turkey (13%), Mexico (10%) and China (8%)
The ETF’s share price closed at $46.81 on October 29, 2019, which was 3.2% higher than it was one year earlier. The fund’s current annualized dividend amount of $3.25 for 2019 is nearly 8% higher than it was last year and currently yields nearly 7%.
The list of the top 6 Monthly Dividend ETFs to consider for your portfolio above ranks the funds primarily by their current forward dividend yield. However, as with all investment decisions, individual investors should conduct their own analysis to validate that the funds’ other metrics, such as share-price trend, payout ratios, long-term and short-term total returns, etc., support their specific portfolio strategy.
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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.