Dividend-paying exchange-traded funds (ETFs) have been growing in popularity, especially among investors looking for a high-yield alternative and more stability for their portfolios. As with stocks, most dividend-paying ETFs pay their dividends quarterly, but an increasing number of ETFs are paying monthly. Monthly dividend ETFs offer investors a couple of advantages, depending on their investment objectives. For investors looking for income, monthly dividends can be more convenient for managing cash flow. For investors looking for greater total returns, monthly dividends that are reinvested can compound at a faster rate than dividends paid quarterly or semi-annually. The majority of monthly dividend payers come from the bond field, but there are more than 40 that invest in equities, preferred stock or multiple assets. The following are four of the best ETFs paying monthly dividends.
Global X SuperDividend™ US ETF
With a trailing 12-month yield of 7.98%, as of April 19, 2016, the Global X SuperDividend US ETF (NYSEARCA: DIV) is a very attractive fund for income investors. Established in 2013, DIV is a relatively small fund, with $279.57 million in assets under management (AUM) as of April 19, 2016. The fund’s objective is to track the performance of 50 equally weighted common stocks,master limited partnerships (MLPs) and real estate investment trusts (REITs) within the INDXX SuperDividend U.S. Low Volatility Index. Securities listed in the index are among the highest-yielding in the United States, and they have lower relative volatility than the market. The portfolio is well diversified, with a 21.83% weighting in utilities, 20.55% in real estate, 19.70% in consumer cyclical, 12.62% in energy and 11.20% in consumer defensive. DIV has performed very well against its benchmark, returning 5.30% over the last three years since 2013. Year-to-date, as of April 19, 2016, the fund was up 5.55%. DIV's expense ratio is 0.45%. For broader diversification, the Global X SuperDividend US ETF would pair very nicely with its cousin, the Global X SuperDividend ETF (NYSEARCA: SDIV), which has a trailing 12-month yield of 7.13% and invests in global high-yielding stocks.
iShares U.S. Preferred Stock ETF
The iShares U.S. Preferred Stock ETF (NYSEARCA: PFF) is a viable alternative for investors seeking high yields. PFF was launched in March 2007, and as of April 19, 2016, it was the largest fund in its category, with $14.74 billion in AUM. PFF seeks to mirror the performance and yield of the S&P U.S. Preferred Stock Index. The portfolio is well diversified, with no security weighted more than 2.45%. However, it does tend to favor financial companies that are big issuers of preferred securities. Over 80% of the portfolio is invested in BBB- or B-rated securities, and less than 8% is invested in A-rated or better. Preferred stock ETFs are generally designed for income, not outperformance, as is the case with PFF, which has delivered a steady total return of 6.03% over the five years since 2010 . The fund’s expense ratio is 0.47%.
PowerShares Preferred ETF
The PowerShares Preferred Portfolio Fund (NYSEARCA: PGX) is another preferred stock ETF that delivers on yield. As of April 19, 2016, the $3.73 billion fund’s trailing 12-month yield was 5.85%. PGX's objective is to replicate the performance and yield of the BofA Merrill Lynch Core Fixed Rate Preferred Securities Index. Its portfolio holds more than 200 preferred stocks with a heavy weighting towards the financial sector. It includes smaller weightings in utilities, telecommunications, industrials and energy. Less than 5% of the portfolio is invested in A- and AA-rated securities, while the rest is invested primarily in BBB- or BB-rated securities. The fund was launched in January 2008 and has returned 7.34% over the five years since 2010, and 6.16% over the three years since 2013. PGX's expense ratio is 0.50%.
SPDR Dow Jones Industrial Average ETF
With a trailing 12-month yield of 2.37%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA) doesn’t offer the highest yield, but investors who prefer some capital appreciation potential with their income might find its portfolio attractive. The fund invests its $12.33 billion in AUM to replicate the performance and yield of the Dow Jones Industrial Index (DJIA), which is comprised of 30 of the bluest blue chip companies. DIA was launched in January 1998. It has done a commendable job of tracking the DJIA, returning 7.41% over the 10 years since 2005 and 10.70% over the five years since 2010, with an expense ratio of just 0.17%.
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