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By Jeff Reeves
last updated
Like all investing strategies, high-yield ETFs are a bit of a balancing act.
On one hand, stocks that deliver tremendous yield can be enticing because of "guaranteed" paydays that are two times, three times or even five times the S&P 500. This is especially true in an environment of extreme market volatility like we've seen in recent years.
But the truth is there are no guarantees on Wall Street. And amid the high interest-rate environment we're in, investors that once saw no alternative to stocks amid a lengthy stretch of low interest rates have been rotating back into bonds. And why not, considering the S&P 500 yields just under 1.6% at present.
However, it's important to remember that in the long term, the stock market always trends higher. For investors thinking about years and decades instead of just the next few months, the best high-yield ETFs still have a lot to offer because they give potential upside as well as a modest stream of income.
There's more risk than U.S. government bonds, to be sure, but there is also much bigger potential for reward. Nonetheless, it's always important to "pop the hood" and see how these high-dividend ETFs fit in with your overall portfolio and your personal risk tolerance.
With that in mind, here are nine of the best high-yield ETFs to buy now. Each of the high-dividend ETFs should provide you with a few examples of the alternatives that are out there, and how each strategy balances its risks with potential rewards. With the average yield of the S&P 500 Index at just under 1.5% at present, the funds featured here are some of the best ETFs to buy for dividend yields, each well ahead of the game, with yields much higher than the broader market.
Disclaimer
Data is as of December 19. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
Topics
Wall Street
1/11
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Best high-yield ETFs
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| Exchange-traded fund | Ticker | Dividend yield |
|---|---|---|
| Schwab U.S. Dividend Equity ETF | SCHD | 3.6% |
| SPDR Portfolio S&P 500 High Dividend ETF | SPYD | 4.9% |
| Global X SuperDividend ETF | SDIV | 12.6% |
| iShares International Select Dividend ETF | IDV | 6.8% |
| Alerian MLP ETF | AMLP | 7.6% |
| Vanguard Real Estate ETF | VNQ | 4.4% |
| iShares Preferred & Income Securities ETF | PFF | 6.8% |
| JPMorgan Equity Premium Income ETF | JEPI | 9.1% |
| iShares iBoxx $ High Yield Corporate Bond ETF | HYG | 7.6% |
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2/11
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Schwab U.S. Dividend Equity ETF
- Assets under management: $51.9 billion
- Dividend yield: 3.6%
- Expenses: 0.06%, or $6 annually for every $10,000 invested
The simplest place for investors to start looking for the best high-yield ETFs is the Schwab U.S. Dividend Equity ETF (SCHD, $75.97). This is one of the largest funds of any flavor on Wall Street, and thanks to its size as well as its elegant simplicity, it's also one of the cheapest with a rock-bottom fee structure that will cost just a few dollars per year for most investors.
The approach is very straightforward: SCHD is benchmarked to the Dow Jones U.S. Dividend 100 Index. As such, this fund holds 100 of the largest and most liquid stocks that pay above-average dividends. And to be included, companies must have paid dividends for at least 10 straight years. The result allows you to double the current yield of the S&P 500, all while sticking with familiar low-risk names that are easy to understand.
At present, top holdings in this dividend ETF are semiconductor stock Broadcom (AVGO), home improvement heavyweight Home Depot (HD) and drugmaker AbbVie (ABBV), to name a few.
These kinds of "risk-off" stocks that hold up well during periods of market volatility, and this high-dividend ETF should continue to serve investors well in the year ahead.
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3/11
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SPDR Portfolio S&P 500 High Dividend ETF
- Assets under management: $6.8 billion
- Dividend yield: 4.9%
- Expenses: 0.07%
Nudging the yield even higher while sticking with the usual suspects is the SPDR Portfolio S&P 500 High Dividend ETF (SPYD, $39.11).
As the name implies, this fund begins with the S&P 500 Index of the biggest U.S. corporations, then zeroes in on the top 15% or so stocks with the largest dividends. That adds up to a portfolio of about 80 companies and a yield that is significantly higher than most other large-cap index funds.
Perhaps unsurprisingly, that also means a significant change in the industry focus when compared with other broad-based funds. Specifically, financial stocks come in first at 25% of the portfolio via holdings like regional bank Fifth Third Bancorp (FITB). That's followed by 22% in real estate stocks and 15% in utility stocks.
Clearly these aren't the same growthy Big Tech names that lead your more popular ETFs. However, if you're interested in income instead of share appreciation then SPYD is a great way for investors seeking out the best high-yield ETFs to stick with big stocks that also tap into big dividends.
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4/11
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Global X SuperDividend ETF
- Assets under management: $774.1 million
- Dividend yield: 12.6%
- Expenses: 0.58%
Of course, "big dividends" are all relative. And one look at the aptly named Global X SuperDividend ETF (SDIV, $21.69) should prove there are some opportunities among the best high-dividend ETFs with yield that simply makes your eyes bulge.
This aggressive Global X offering pursues yield above everything else, wherever it can find it. That means smaller international names like Hong Kong shipping stock Orient Overseas. It also includes lesser-known U.S. stocks like real estate investment trusts (REITs) Ready Capital (RC) and Uniti Group (UNIT).
This hand-picked portfolio of roughly 100 companies certainly has a higher risk profile than your typical fund. However, this fund provides an income stream that is unmatched – by even the best of the best high-yield ETFs out there. If you have a high risk tolerance or a desire for dividends above anything else, then SDIV could be worth a look.
Sure, some of the dividends from emerging market companies are irregular instead of coming on a quarterly cycle. And sure, some of these companies are paying dividends that they may not be able to afford in a few years. But you can't argue with the yield.
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5/11
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iShares International Select Dividend ETF
- Assets under management: $4.4 billion
- Dividend yield: 6.8%
- Expenses: 0.49%
Splitting the difference between the generous but risky dividends of SDIV components and the slow-and-steady performance of large-cap U.S. stocks is the iShares International Select Dividend ETF (IDV, $27.57).
While these companies might not have the same name recognition that the best blue chip dividend stocks do, they are multi-billion-dollar leaders in their industries and icons in their home countries. As such, London-based mega-miner Rio Tinto Group (RIO), Australian materials stock BHP Group (BHP) and Japanese shipping leader Nippon Yusen (NPNYY) are included in IDV's roughly 100-stock portfolio. Top nations in order of exposure include the U.K. (15%), Australia (10%) and Canada (10%).
There's a culture of consistent and generous dividends in several foreign countries thanks to the fact that many publicly traded companies in nations like the U.K. and Japan are trying to attract pension plan managers as investors. That means that even with a focus on leading large caps in this region, you can regularly find paydays of 5% or better.
In fact, right now IDV offers a tremendous dividend that's more than four times that of the S&P 500. And best of all, if you hold large U.S. stocks in other parts of your portfolio, you can easily layer in IDV without duplicating any other positions.
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6/11
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Alerian MLP ETF
- Assets under management: $7.3 billion
- Dividend yield: 7.6%
- Expenses: 0.85%
When slicing up the universe of the best dividend stocks by sector instead of geography, one of the obvious places to start is with energy companies. But unlike riskier funds that play oil exploration and production stocks, the Alerian MLP ETF (AMLP, $42.49) offers a lower-risk way to play the sector with a focus on "midstream" operations.
This high-dividend ETF is made up of about 15 energy companies, mainly involved in the pipeline and storage business. This means they are more reliable and more insulated from the ups and downs of oil prices, and can deliver more consistent payouts than other aggressive plays in the energy sector. Top holdings right now include Energy Transfer (ET), Plains All American Pipeline (PAA) and MPLX (MPLX).
The MLP in the name of this high-yield ETF stands for master limited partnerships. As the last word in this special class of company should make clear, these vehicles are structured partnerships – which means they deliver a big chunk of operating profits back to unitholders, but also a bunch of extra obligations as partial owners of the business.
Many investors love this mandate for dividends, but despise the headaches and reporting that include the dreaded K-1 tax form every year. Thankfully, AMLP reports on a 1099 form for taxes and offers a diversified and hassle-free way to access the space – while maintaining the tremendous yield MLPs can offer.
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7/11
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Vanguard Real Estate ETF
- Assets under management: $33.7 billion
- Dividend yield: 4.4%
- Expenses: 0.12%
The Vanguard Real Estate ETF (VNQ, $88.75) is the largest and most liquid real-estate focused fund of its kind. It is also the go-to way for income-oriented investors to tap into the dividend potential of this sector in a low-cost index fund.
Real estate wasn't exactly been the greatest corner of the stock market for most of 2023, with VNQ down nearly 14% for the year-to-date in late October thanks to rising interest rates significantly increasing the cost of borrowing. However, things appear to be turning a corner, with the fund up more than 25% since October 25.
And it's worth remembering the old adage that past performance is no guarantee of future returns. Real estate is a very popular sector for income investors because consistent rent checks are the perfect vehicle to support regular and generous dividends. Furthermore, just as MLPs in the energy sector have a mandate for big paydays, there is a special class of companies on Wall Street known as real estate investment trusts that must deliver a significant chunk of profits back to shareholders.
The REITs that make up VNQ come from various parts of the real estate biz, including warehouse operator Prologis (PLD), telecom tower owner American Tower (AMT) and self-storage giant Public Storage (PSA). Collectively, they offer an interesting way for investors seeking out the best high-yield ETFs to tap into income outside of the usual suspects.
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8/11
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iShares Preferred & Income Securities ETF
- Assets under management: $13.5 billion
- SEC yield: 6.8%*
- Expenses: 0.46%
Looking beyond the various ways to slice up common stock, the iShares Preferred & Income Securities ETF (PFF, $31.12) is the largest and most liquid way for regular investors to play "preferred" stock. This asset is a kind of hybrid between stocks and bonds, offering the stability and income potential of conventional debt offerings but also a bit more risk as it isn't protected in the event of default in the same way stocks are excluded from bankruptcy proceedings.
Typically, preferred stock is issued by large and capital-intensive enterprises. So perhaps unsurprisingly, PFF is skewed toward the financial sector, with about three-quarters of its assets tied up in these institutions. The rest is mostly allocated toward industrial stocks or utilities that need cash for big projects.
PFF took a tumble in early 2023, with shares down about 7% for the year-to-date in late October. This is because higher interest rates mean larger rates of return are required on these kinds of interest-bearing assets. And as with bonds, older-dated preferred stock with a lower yield has been deeply discounted as investors are more interested in new offerings rather than the secondary market for old preferreds.
Still, the ETF has since stabilized since then and is set to end the year in positive territory.
And the bottom line is that if you buy and hold, these companies will certainly be there in the long run. At present, top holdings in this high-yield ETF include preferred stock from icons like Wells Fargo (WFC) and Citigroup (C), along with deep-pocketed utilities like Nextera Energy (NEE).
* SEC yields reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds.
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9/11
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JPMorgan Equity Premium Income ETF
- Assets under management: $30.7 billion
- Dividend yield: 9.1%
- Expenses: 0.35%
Perhaps the most unique among the best high-yield ETFs featured on this list is the JPMorgan Equity Premium Income ETF (JEPI, $55.13). This tactical fund is similar in many ways to your regular run-of-the-mill blue chip dividend stock fund.
Its underlying portfolio holds about 100 of the usual suspects you'd expect to see on a list of dividend stocks, including Adobe and credit card giant Visa (V) – the latter a member of the Berkshire Hathaway equity portfolio.
However, JEPI also employs covered calls – options that are sold to collect a premium – to supercharge the dividends on those stocks. And the extra premiums from those options contracts help add up to a tremendous yield. Indeed, JEPI throws off a yield more than six times the broader S&P 500!
Covered call options are typically "out of the money," meaning the current price is already trading moderately below the target price – meaning the only way these options are executed is if the stock market stages a big rally.
But that's actually a pretty good thing for JEPI since it is selling call options to other investors rather than buying them. And the extra premiums from those options contracts help add up to a tremendous yield.
Perhaps unsurprisingly, there is a trade off here. The options sold on these stocks limit upside if and when the market surges higher. But thanks to this strategy of harvesting options, JEPI declined less than the broader market in 2022.
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10/11
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iShares iBoxx $ High Yield Corporate Bond ETF
- Assets under management: $19.1 billion
- SEC yield: 7.6%
- Expenses: 0.49%
We've talked a lot about equity-driven income investments so far, but no list of the best high-yield ETFs would be complete without a fund of "junk" bonds.
That's what investors get with the iShares iBoxx $ High Yield Corporate Bond ETF (HYG, $77.20). This fund leads its category when it comes to assets under management, and is made up of about 1,200 or so high-yield bonds from distressed corporations. There's clearly more risk in these businesses, which include music streaming company Sirius XM Radio (SIRI) and casino operator Caesars Entertainment (CZR), among others. But in order to entice lenders, these companies pay significantly higher interest levels on their debts to offset that elevated risk.
It's also worth noting that while you might be in trouble if you own a handful of individual junks bonds, a diversified ETF like HYG helps smooth things out. If the broader economy continues to stumble, significantly there's a chance that many companies will take a spill. However if only a handful run into trouble, then there's plenty of other bonds in this high-dividend ETF to ensure the generous payouts keep rolling in.
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11/11
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Are ETFs a good investment?
It's important to acknowledge that when it comes to investing, all decisions are personal. There is no one-size-fits-all approach to your current savings or your future retirement.
However, "[o]ne of the best and simplest ways to build a diversified portfolio is through using exchange-traded funds (ETFs), which give you access to hundreds of stocks in a single fund at very low fees," writes Kiplinger contributor Will Ashworth in his article, "How to Invest in ETFs for Beginners."
Related content
- Many Mutual Funds Are Converting To ETFs: What To Know
- What Are Dividend Stocks?
- Best Dividend ETFs to Buy Now
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Jeff Reeves
Contributing Writer, Kiplinger.com
Jeff Reeves writes about equity markets and exchange-traded funds for Kiplinger. A veteran journalist with extensive capital markets experience, Jeff has written about Wall Street and investing since 2008. His work has appeared in numerous respected finance outlets, including CNBC, the Fox Business Network, theWall Street Journaldigital network,USA Todayand CNN Money.
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