Low interest rates mean investors must find other routes to good returns.
Interest rates are still far below pre-pandemic levels, leaving investors searching beyond bonds for other sources of steady income. With the Federal Reserve reiterating its federal funds rate target of 0% to 0.25% at its most-recent December meeting, interest rates will likely stay low for some time. Meanwhile, Fed Chairman Jerome Powell changed his tone on inflation at the start of December, saying, “it’s probably a good time to retire that word (transitory).” With U.S. inflation increasing to 6.8% over the previous year in November — the highest rate since 1982 — many investors wonder what they can do to protect their income-producing holdings. It’s no secret that inflation eats into your earnings. Fortunately, there are a number of high-dividend exchange-traded funds out there that investors can use to continue building their wealth even in today’s high-inflation environment. Here are six of the best high-dividend ETFs on the market.
Global X MLP ETF (ticker: MLPA)
The first of two ETFs that track master limited partnerships, or MLPs, on this list, this passively managed fund has more than $1 billion assets under management, or AUM. Tracking the Solactive MLP Infrastructure Index, MLPA invests primarily in companies and partnerships in the energy sector. Its three largest holdings are Enterprise Products Partners LP (EPD), Energy Transfer LP (ET) and Magellan Midstream Partners LP (MMP). The fund has a net expense ratio of 0.46%, or $46 for every $10,000 invested annually, which is the second-lowest on this list. And that’s ideal to keep costs from eating into profits.
Global X NASDAQ 100 Covered Call ETF (QYLD)
The way this passively managed fund works is pretty simple. It writes one-month, at-the-money calls on the Nasdaq-100 stocks it owns, a strategy intended to yield a strong stream of income, especially when the stocks in question are trading in a narrow range. QYLD isn’t the only covered-call ETF out there, but with $5.8 billion in assets under management, it’s by far the largest. Also, the fund has a 10-day average trading volume of about 4 million shares, which makes it quite liquid. And with a net expense ratio of 0.6%, this fund is squarely in the middle of the funds on this list. A covered-call fund may not be the best investment for long-term, buy-and-hold investors. But analysts at New Constructs, who give QYLD a “buy” rating, consider QYLD’s earnings component qualities “very attractive” and rate the fund’s annual costs “attractive.”
Alerian MLP ETF (AMLP)
The second MLP ETF on this list, AMLP’s net expense ratio of 0.9% is higher than ideal. However, the fund has enough going for it on other fronts that its holdings make up for its higher fees. This passively managed ETF tracks the Alerian MLP Infrastructure Index. This means it invests primarily in companies in the energy infrastructure sector. Its top three holdings are Enterprise Products Partners LP (EPD), Western Midstream Partners LP (WES) and MPLX LP (MPLX). And with $4.9 billion in assets, AMLP has the second-highest AUM covered here. It also has a 10-day average trading volume of 2 million shares, so the fund is pretty liquid. And with a good quarterly dividend, AMLP easily helps investors beat today’s inflation.
Global X SuperDividend ETF (SDIV)
The third of three offerings from Global X on this list, SDIV has a lot to offer. SDIV tracks the Solactive Global SuperDividend Index, which means it offers investors international exposure. Its current top holdings are China Power International Development Ltd. (HKG: 2380), Nos SGPS SA (ELI: NOS) and Iron Mountain Inc. (IRM). Some American investors may not have heard of these companies, but the fund’s goal is to invest in global dividend-paying stocks across a diversified range of market caps. This passively managed fund’s net expense ratio is 0.59%, making it one of the cheaper dividend-paying ETFs.
Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI)
NUSI has a lot in common with the QYLD mentioned earlier. However, without getting too deep in the weeds, NUSI might make for a safer bet. That’s because in addition to covered calls, NUSI also buys protective puts on the Nasdaq-100, adding a layer of risk management to the QYLD strategy. This cuts NUSI’s yield significantly, but it could make it a safer long-term bet in the high-yield ETF space. In fact, CFRA Research gives the fund a five-star rating, saying it ranks among the highest in reward potential of the funds it covers. NUSI’s expense ratio is 0.68%.
VanEck Mortgage REIT Income ETF (MORT)
As the fund’s name states, MORT invests primarily in real estate investment trusts, or REITs, that focus on mortgage income across the U.S. The fund has 27 holdings in its portfolio. This passively managed fund tracks the MVIS US Mortgage REITs Index. It has $305 million in assets, and while it’s smaller than the other ETFs on this list, MORT’s net expense ratio is 0.41%, which is the lowest cost among the funds covered here. That means the income earned from this ETF won’t be eaten up by as much in fees. Analysts at New Constructs give MORT a “very attractive” rating for its total annual cost, and CFRA gives the fund a five-star rating overall.
Best high-dividend ETFs:
— Global X MLP ETF (MLPA)
— Global X NASDAQ 100 Covered Call ETF (QYLD)
— Alerian MLP ETF (AMLP)
— Global X SuperDividend ETF (SDIV)
— Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI)
— VanEck Mortgage REIT Income ETF (MORT)