This week, Federal Reserve Chairman Jerome Powell said the central bank “will provide the economy with the support it needs for as long as it takes.”
This means that low interest rates are likely to persist, keeping a cap on income-producing investments.
One way to move forward is with dividend stocks and exchange traded funds that keep them. The following is a list of US ETFs with the highest dividend yields, ranging from 4.9% to 9.8%.
Mark Grant, B. Riley Financial’s top global fixed income strategist, wrote in his email “Out of the Box” on March 22 that, with inflation at 1.68% last month, “you have to exceed that rate to get any kind of “real return,” or just play mahjong ”with inflation and the Federal Reserve.
With prohibitively low bond yields, it favors closed-end funds and changes traded funds to achieve this revenue target. He warned that investors should do their homework to select the right ones.
ETFs are easier to analyze than closed-end funds, especially ETFs with diversified portfolios.
Focusing on revenue, not growth
There is a difference between investing in growth and investing in income. The goal of an income portfolio is not to exceed the total return on a growth rate. It is to preserve income and capital.
The stock market crash in March 2020 serves as an example of maintaining long-term quality stocks. Regardless of how long the recoveries take, if you have shares of companies that generate enough cash flow to cover their dividends, you can make money while eliminating volatility.
Dow Inc. DOW,
it is a separate case. At the end of 2019, the shares closed at $ 54.73 and the company paid a quarterly dividend of 70 cents per share, with a return of 5.12%. As of March 23, 2020, shares had fallen 51% to $ 26.58. The company did not cut the dividend and its quarterly free cash flow has easily covered payment since the Covid-19 crisis began. And the shares closed at $ 60.75 on March 23, 2021.
Obviously the right thing for Dow shareholders was to get out of the storm, but many investors didn’t have any. If we take this idea further, at the close of that dark day of March 23, 2020, the return on Dow shares had risen to 10.5%. The market had given investor patients the opportunity to get a very high return.
All of this is true for dividend ETFs, especially those with high returns.
ETFs with higher dividend shares
A FactSet data query generated a list of 66 U.S. ETFs that “weight shares by dividend and / or seek high dividend yields.”
An advantage of ETFs is that they are easy to trade. You can buy or sell anytime the stock market is open. Free equity mutual funds allow you to sell shares to the fund company only once a day at the close of the market.
The share price of a free capital investment fund is its net asset value (NAV), which is the sum of the market values of its assets divided by the number of shares. It is the book value of a fund.
ETFs also have NAVs, but also their own stock prices that differ from the NAV. Grant wrote that when analyzing closed-end funds and ETFs, he says “no thanks” if the stock price is higher than the NAV. But while some closed-end funds may trade with high premiums on the NAV, most ETFs on dividend shares listed here are exchanged for small premiums or discounts.
Listed below are the 10 U.S. dividend stock ETFs with the highest dividend yields at the close of March 23:
(Data set)
You can see that the premiums in NAV, if any, are small.
These ETFs have a variety of approaches and you should go to the administrators ’websites for information on the goals and management styles of anyone you consider. Some are closely focused, which can increase the risk.
The table includes the average daily transaction volume at three months. The larger your holdings, the more important the liquidity will be when you try to buy or sell at the best price on a given day. The second highest performing ETF on the list, the Virtus Private Credit Strategy VPC ETF,
has an average daily transaction volume of only 9,000 shares. This means that the operations of any individual investor have a gross effect on that day’s price flow.
Regardless of liquidity, use limit orders for your operations. They cost no more and can save you from temporary price distortions.
The annual spending ratio of Virtus ETF could seem alarmingly high, at 5.53%. However, this is another area where investors need to take a second look. The fund invests in business development companies and closed-end funds, which must include their own interest expenses (as they are leveraged) as part of their management fees. The annual management fee of the Virtus Private Credit Strategy ETF is 0.75%, and the remainder of this expenditure ratio of 5.53% represents the management fees of the BDCs and closed-end funds it holds.
The financial ETF of Invesco KBW High Dividend Yield Financial KBWD,
it has the third highest dividend yield on the list and the second highest expense ratio, at 1.24%.
However, FactSet has this to say: “The fund rate is a regulatory illusion. It must report the operating expenses of its private equity stakes as part of its expense ratio. Real-world holding costs have always been in line with KBWD’s very reasonable management fee of 0.35%. The ETF focuses on real estate investment trusts as well as private equity funds.
The largest ETF on the list is the Alerian MLP AMLP ETF,
which invests in energy associations that tend to have high dividend yields, but which also complicate the presentation of taxes to investors. The ETF avoids tax complication. But its space has been extremely volatile. The price of AMLP shares has suffered for a long time. Until 2021, shares have increased by 14%.
The ETF listed with the second highest trading volume has been the SPYD Portfolio S&P 500 High Dividend ETF,
It follows what FactSet calls “a meaningless approach to high performance in the large capitalization space of the United States.” SPYD takes an equally weighted position in the 80 shares among the S&P 500 with the highest dividend yields. It rebalances monthly and has the lowest expenses of any ETF on the list. Its 4.99% yield compares to a dividend yield of 1.48% for the entire S&P 500.
While it’s important to note, again, that income is the primary goal here, total returns (with reinvested dividends) can make useful comparisons of long-term performance.
Below are the group’s total and average annual returns for three, five, and ten years.
(Data set)
The S&P 500 High Dividend ETF Portfolio ETF has had the best returns for three to five years, while the Invesco KBW High Dividend Yield Financial ETF takes home the award among the three that have existed for 10 years.