Exchange-traded funds (ETFs) have continued to gain popularity because they combine favorable characteristics of stocks and mutual funds, and can offer high dividend yields for income-seeking investors.
ETFs offer the convenience of trading easily, like stocks, as well as liquidity and tax efficiency. Additionally, ETFs also offer easy diversification generally associated with mutual funds. An ETF is a basket of securities that can comprise all types of investments including stocks, commodities or bonds. While dividend-focused ETFs can hold all dividend-paying equities, other ETFs consist of a mix of equities where some pay dividends and some do not.
Compared to stocks, mutual funds and other investment vehicles, ETFs are relatively new. However, ETFs already offer plenty of advantages to attract investors. Investing in dividend-paying ETFs minimizes total exposure by spreading the risk across all the holdings in the fund. ETFs also provide convenient and inexpensive opportunities for investors to diversify their respective portfolios.
With more than 6,500 ETFs globally and 2,000 ETFs in the United States, investors have a wide selection to find the best ETFs to match individual portfolios. For income investors, the simplest way would be to select the top dozen funds sorted by high dividend yields.
In the list below, all the ETFs meet the requirement of having at least $1 billion in market capitalization. Also, each ETF had to have delivered at least four distributions in 2019. With the two criteria in mind, here are the 12 ETFs that pay high dividend yields.
iShares Long-Term Corporate Bond ETF (NYSE:IGLB)
This fund tracks the performance of the ICE BofA ML 10+ Year US Corporate Index. As of September 11, 2020, the fund’s 2502 individual equities equaled $1.8 billion in total assets. The ETF’s share price has risen more than 35% since its low in March 2020 from the COVID-19 market crisis. Combined with the 3.38% dividend yield, IGLB has rewarded investors with an 11.66% total return over the past year. Despite the share price volatility in the current and previous few years, it gained a three-year and five-year total returns of 26% and 46%, respectively.
Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD)
The Invesco S&P 500® High Dividend Low Volatility ETF tracks the composition and results of the S&P 500 Low Volatility High Dividend Index. The fund allocates $2.4 billion across 51 individual holdings. Only four holdings — William Companies Inc. (NYSE:WMB), Iron Mountain Inc. (NYSE:IRM), Altria Group (NYSE:MO) and Down Inc. (NYSE:DOW) — had a share of assets that exceeded 3%.
Recently, SPHD’s holdings were adversely affected by the COVID-19 market crash with a 17.07% total one-year loss. However, over the last five years, the fund delivered 33% total returns.
Invesco Fundamental High Yield® Corporate Bond ETF (NYSE:PHB)
The Invesco Fundamental High Yield® Corporate Bond ETF is based on the RAFI® Bonds US High Yield 1-10 Index. The fund’s 212 individual holdings combine for over $760 million in total assets. Its portfolio holdings are evenly distributed within its holdings, as its top 10 holdings account for merely 13% of its total assets, and only the top four holdings have over a 1.5% individual portfolio weight. Over the past year, the fund’s dividend distribution and capital gains offered a one-year total return of 2.33%. The three-year total return was 11% and the five-year combined returns are 24%.
ETRACS Monthly Pay 2xLeveraged S&P Dividend ETN (NASDAQ:BSJK)
This fund seeks to track the investment results of the Nasdaq Bulletshares USD High Yield Corporate Bond 2020 Index. As of its most recent report, the fund had total assets of $712 million allocated across 18 components. None of its stock holdings, disregarding its assets in U.S. Treasury Bills, accounted for over 5% of its assets. In the past 12 months, the COVID-19 market crash caused a lower total loss of 0.05%. However, the long-term total returns over the last three years were 6% and 16% for the last five-year period.
iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ:EMB)
This ETF tracks the composition and performance of the J.P. Morgan EMBI Global Core Index. Currently, the fund had approximately $16.8 billion in total assets allocated across 511 individual equities. No individual equity accounts for more than 1% of total assets. Furthermore, sorted by the country of issuance, only Mexico (5.65%), out of the 64 countries represented in the fund individually account for more than 5% of total assets.
After a dip in March 2020, the share price has recovered more than 32% since the onset of the pandemic. This stock price recovery, combined with dividend distributions, resulted in total returns of 3.65% over the trailing 12 month period, 10% over the last three years and 30% over the last five years.
Invesco Emerging Markets Sovereign Debt ETF (NYSE:PCY)
The Invesco Emerging Markets Sovereign Debt ETF tracks the composition and results of the DBIQ Emerging Market USD Liquid Balanced Index. The ETF held nearly $3 billion in total assets allocated across 101 individual holdings. No country represented in the fund accounts for more than 2% of the fund. The share price and market volatility delivered a one-year loss of 0.32% but achieved three-year total returns of 6%. Furthermore, PCY is a stable long-term investment, with approximately 26% in total returns offered in the past five years.
iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG)
The iShares iBoxx $ High Yield Corporate Bond ETF uses the Markit iBoxx USD Liquid High Yield Index as its basis. As of September 11, 2020, the fund had total assets of $30 billion allocated across 1,220 individual holdings.
After eight years of declining annual dividends, the fund stabilized its annual dividend payout for 2019 and withstood the market crash to deliver to its shareholders a total return of 1.59% over the last year. The three-year total return came in at more than 10% and the five-year total return is approaching 24%.
Invesco Senior Loan ETF (NYSE:BKLN)
Based on the S&P/LSTA U.S. Leveraged Loan 100 Index, the fund normally invests at least 80% of its total assets in the component securities that comprise the Index. Its $4.3 billion in total assets is spread across 103 individual securities. While most components are below a 2% share, the top 10 components combine for 31% of total assets due to maturing corporate bonds that account for 13% of total assets. For the current year, its 4.14% dividend income yield barely contributed to its 0.64% one-year total return. Three and five-year total returns were 7% and 14%, respectively, which were limited by the varying share price in the past few years and the market crash.
VanEck Vectors Fallen Angel High Yield Bond ETF (NASDAQ:ANGL)
This fund attempts to replicate the price and yield performance of the ICE BofA ML U.S. Fallen Angel High Yield Index. The fund’s 315 holdings combine for $3.1 billion in total assets. Among the holdings, approximately 85% are United States securities. The remaining holdings comprise investments in Italy, France, United Kingdom, Cayman Islands, Germany, Canada, Sweden, Luxembourg, Australia, Finland and Ireland.
The COVID-19 market crash in March 2020 pulled down its total return to 7.36% over the trailing 12 month period. Its three-year return was nearly 16% and the five-year total return was nearly 43%.
iShares Preferred & Income Securities ETF/iShares Trust (NASDAQ:PFF)
This ETF uses the ICE Exchange-Listed Preferred & Hybrid Securities Index as a benchmark. As of September 11, 2020, it had $16 billion of the fund’s total assets distributed across 517 individual holdings. Individually, only Broadcom, Inc. (NASDAQ:AVGO) has more than a 2% share of total assets. The top 10 equities represent only 13% of total assets.
The extreme drop in share price combined to limit AVGO to just a 2.83% total return for the trailing 12 months. However, the three-year total return exceeded 8%, with a five-year total return of 20%.
iShares 0-5 Year High Yield Corporate Bond ETF (NYSE:SHYG)
The iShares 0-5 Year High Yield Corporate Bond ETF seeks to track the investment results of Markit iBoxx USD Liquid High Yield 0-5 Index, which invests in U.S. dollar-denominated, high-yield corporate bonds with remaining maturities of less than five years. The ETF has more than $4.9 billion in net assets and contains 721 individual holdings.
The top 10 equities account for approximately 7% of the entire fund and the share of no single equity exceeds 1%. The total loss, mainly due to the effects of the COVID-19 market crash, over the trailing 12 month period was 0.09%. However, the three-year return is approximately 8% and the total return over the last five years exceeded 20%.
VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (NYSE:EMLC)
With nearly $3.2 billion in assets under management, the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF seeks to replicate the price and yield performance of the J.P. Morgan GBI-EM Global Core Index. The index comprises bonds issued by emerging market governments that are due to expire in less than ten years, and therefore, is for investors seeking shorter-dated issues. The top 10 of the ETF’s 268 current holdings account for 17% of the fund’s total assets, but no country holds more than 2% of the portfolio weight. The fund’s current dividend yield of 5.82% was able to contribute to the total return of 0.23% over the past year. When looking at long-term returns, the fund had a 17% five-year total return.
These 12 high-paying ETFs to buy offer investors an array of ways to pursue diversified capital appreciation and receive income payments, too.
Katie Kao is an editorial intern with Eagle Financial Publications.