Exchange traded funds (ETFs) can be an income investor’s best friend. They provide much-needed diversification. And some of them generate solid and reliable income.
While there are plenty of alternatives to choose from, I think a handful of ETFs particularly stand out. Here are three high-yield dividend ETFs you can buy to generate passive income (ranked in descending order of return).
1. JPMorgan Equity Premium Income ETF
Two things immediately catch the eye JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI). First, there’s the fund’s juicy 30-day SEC yield of 7.52%. Second, the ETF pays a monthly distribution, something income investors in particular should like.
Another intriguing fact about the JPMorgan Equity Premium Income ETF is not so obvious. Although yields are high and the country owns a lot of stocks (132 as of May 15, 2024), many of those stocks do not offer a high dividend yield or do not even pay dividends at all. So how does the ETF pay such a high yield? It writes out-of-the-money S&P500 index call options to increase payouts.
The JPMorgan Equity Premium Income ETF’s 0.35% annual expense ratio seems reasonable based on the strong distribution you receive. The fund could also deliver attractive returns. Since inception, the average annual return is 12.2%.
Perhaps the biggest objection to this ETF is that it has not been around for very long. JPMorgan Chase launched the fund in May 2020. However, despite this relatively short duration, I think the JPMorgan Equity Premium Income ETF is an excellent choice for more aggressive income investors.
2. SPDR Portfolio S&P 500 High Dividend ETF
If you don’t like the idea of an options-focused ETF, the SPDR Portfolio S&P 500 High Dividend ETF (NYSEMKT: SPYD) could be more up your alley. This fund, managed by State Streetattempts to track the S&P 500 High Dividend Index, which includes the top 80 companies in the S&P 500 with the highest dividend yields.
The SPDR Portfolio S&P 500 High Dividend ETF’s top holdings currently include: Public Service Enterprise Group, Hasbro, Iron Mountain, Citi GroupAnd Dominion Energy. The 30-day SEC yield is a solid 4.52%.
Since its inception in October 2015, the ETF has achieved an average annual return of almost 8.2%. It could be in a position to continue to provide relatively good total returns, as the average stocks in the fund are reasonably priced with a price-to-earnings ratio of less than 15.1.
Few income investors will complain about the costs associated with the SPDR Portfolio S&P 500 High Dividend ETF. The annual expense ratio is a low 0.07%.
3. Invesco High Yield Equity Dividend Achievers ETF
What’s better than a high-yield dividend ETF? One that also has a growing spread. That’s exactly what the Invesco High Yield Equity Dividend Achievers ETF (NASDAQ: PEY) gives you.
This fund attempts to track the NASDAQ US Dividend Achievers 50 Index. The index includes 50 stocks selected primarily based on their dividend yield and consistency in dividend growth. The Invesco High Yield Equity Dividend Achievers ETF’s key holdings currently include: Altria Group, First Interstate Banking System, Universal Corp/VA, 3MAnd Truist Financial.
The ETF pays a 30-day SEC yield of 4.29%. The dividend payment has more than doubled over the past ten years.
Perhaps the biggest negative for the Invesco High Yield Equity Dividend Achievers ETF is its lackluster overall performance. The fund has achieved an average annual return of just 5.83% since its inception in December 2004. Its expense ratio of 0.52% is also higher than the other funds on our list. Still, this ETF could be an attractive option for income investors looking for growing passive income.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Iron Mountain, JPMorgan Chase, and Truist Financial. The Motley Fool recommends 3M, Dominion Energy and Hasbro. The Motley Fool has a disclosure policy.
3 High-Yield Dividend ETFs to Buy to Generate Passive Income was originally published by The Motley Fool
