One of the biggest issues with retirement is balancing out your cash flows. Individual bonds generally pay out their coupons only once or twice a year, while most stocks, exchange traded funds (ETFs) and mutual funds pay on a quarterly basis.
But bills are generally due every month. From the cable bill to our mortgages, our lives mostly revolve around a monthly schedule. And with various sources of income occurring at different times, it can be a challenge to manage all of those payouts. Overspending and not budgeting properly are some of the biggest hazards in retirement.
Which is why investors should try ETFs that pay their dividends monthly.
Aside from the ability to pay your car payment on time, monthly dividends can also help on the compounding front and boost returns if those payments are reinvested. In addition, waiting six months for your money reduces the true yield on your investment. All in all, monthly dividend payments can be a godsend for those investors near or in retirement.
Here are five ETFs that pay their dividends monthly.
Monthly Dividend ETFs To Buy #1: SPDR Dow Jones Industrial Average ETF (DIA)
Dividend Yield: 2.1%
You can make the argument that the Dow Jones Industrial Average is a dinosaur of an index and pretty meaningless in terms of true broad stock market measure. Regardless, the index is still a great way to add exposure to some of America’s largest and most venerable companies. The real “bedrock” of America.
The popular SPDR Dow Jones Industrial Average (DIA) ETF makes it easy to add the Dow to your portfolio.
The $11 billion and heavily traded dividend ETF tracks the 30 mega-cap stocks within the Dow. These include household names like Visa (V) and Caterpillar (CAT). All for a cheap expense ratio of 0.17% — or $17 per $10,000 invested. That focus on the biggest and brightest has produced some pretty decent returns over the last ten years. The DIA has managed to post a 7.5% annual return during that time — not too shabby for plodding mega-cap giants.
Another often ignored benefit of the DIA, is that it pays a monthly dividend. That monthly payout — along with the fact that its holds relatively stable and large firms — makes it perfect for conservative investors looking for income.
Monthly Dividend ETFs To Buy #2: Global X SuperDividend ETF (SDIV)
Dividend Yield: 6%
The $966 million Global X SuperDividend ETF (SDIV) is a hodgepodge of various global high-yielding stocks, trusts and other securities. However, in that diverse mixture, investors are treated to one of the highest-yielding monthly dividend ETFs around. Currently, around 6.26%.
The key is in SDIV’s underlying index.
SDIV tracks the 100 highest-yielding equity securities (including REITs and MLPs) from across the world and then equally weights them to create its portfolio. Top holdings include telecom Frontier Communications (FTR) and Australian department store operator David Jones. SDIV is truly a global option, with the United States only making up around 23% of assets.
In terms of total performance, SDIV has been solid. Since the monthly dividend ETF’s inception in 2011, SDIV has managed to return 25%. However, it has been prone to big price swings, due to the volatility of its underlying holdings. Income seekers should probably use the dividend ETF as a satellite position.
Expenses for SDIV run 0.58%.
Monthly Dividend ETFs To Buy #3: WisdomTree SmallCap Dividend ETF (DES)
Dividend Yield: 2.5%
Over the longer term, small caps have historically out performed large cap stocks by a wide margin. That margin grows even larger when you include small caps that pay hefty dividends. Enter the WisdomTree SmallCap Dividend ETF (DES), which adds monthly dividend payouts to the mix.
According to WisdomTree, “The Index is dividend weighted annually to reflect the proportionate share of the aggregate cash dividends each company is projected to pay in the coming year.” Or, in plain English, DES screens for those firms with not only the highest yields, but those that are also the most secure and strong.
All in all, DES tracks 685 different dividend paying small-cap stocks, with financials (26%), industrials (18%) and utilities (135), rounding out the top sector weights.
DES isn’t the highest yielding ETF on the planet, with a current dividend yield of 2.87%. However, that yield is nearly double traditional small-cap metrics like the iShares Russell 2000 (IWM). DES has also been less volatile than the popular IWM as well.
Expenses run 0.38% for the monthly dividend ETF.
Monthly Dividend ETFs To Buy #4: UBS E-TRACS Monthly Pay 2x Mortgage REIT ETN (MORL)
Dividend Yield: 20%
Sometimes a 3, 4 or even 7% dividend yield isn’t even enough. For those investors, the UBS E-TRACS Monthly Pay 2x Mortgage REIT ETN (MORL) and its 20% yield could be for you. And no, that wasn’t a typo.
MORL adds leverage to an already high-yielding sector — mortgage real estate investment trusts. These firms don’t actually own physical buildings, but make or buy loans tied to commercial or residential real estate. Often they will borrow money themselves to help finance their own activities. The sector isn’t normally for the faint of heart, as changes in interest rate policy and economic issues generally mean plenty of volatility for the sector.
However, for those investors willing to take the plunge, the mREITS and MORL could be a great dividend play.
Again, that 22% isn’t risk-free, and investors probably don’t want to bet the farm on the ETN. But at only 0.40% in expenses, MORL could be an interesting dividend ETF satellite pick for those looking to juice their income.
Monthly Dividend ETFs To Buy #5: iShares Morningstar Multi-Asset Income ETF (IYLD)
30 Day SEC Yield: 6.5%
As interest rates have hovered near zero for what seems like an eternity, investors have plunged head-first into a variety of high dividend-paying assets classes. Everything from junk and convertible bonds to infrastructure assets are now becoming portfolio staples.
Tracking and creating positions in all of these “weird” asset classes can be a daunting task.
Which is why the monthly dividend paying iShares Morningstar Multi-Asset Income ETF (IYLD) may seem like a godsend. IYLD is a fund of funds that holds all of these various high yielding asset classes.
The ETF is quasi-actively managed by BlackRock (BLK) and shifts its portfolio of underling iShares ETFs around to create an asset allocation of roughly 60% bonds, 20% stocks, and 20% alternative income sources. Top holdings currently include the iShares iBoxx $ High Yield Corporate Bond (HYG) and the iShares High Dividend (HDV).
All in all, IYLD’s mix of ETFs creates a juicy 6% yield that’s paid monthly. All for expenses of 0.60%.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.