Sure, the Federal Reserve has boosted interest rates twice this year, but 10-year Treasuries yield just 2.2%, confirming that investors are still having to look for income in other places and with some unique asset classes.
Fortunately, the world of exchange-traded funds (ETFs) is littered with credible income options. Income ETFs can be found among a wide array of asset classes, including familiar fare such as bonds and common stocks. With international equities outperforming U.S. stocks this year, investors should also consider ex-U.S. income ETFs.
In what is still a low-yield environment throughout much of the developed world, income investors should consider mixing and matching asset classes and geographic exposures in an effort to enhance portfolio diversity while potentially boosting current income. With that in mind, consider some of the following income ETFs for your needs.
Income ETFs to Buy: PowerShares High Yield Equity Dividend Achievers Portfolio (PEY)
Expense Ratio: 0.54% per year, or $54 annually on a $10,000 investment
The PowerShares High Yield Equity Dividend Achievers Portfolio (NYSEARCA:PEY) often goes overlooked among dividend ETFs, but this income fund has been around nearly 13 years and it is not as small has highlighted by its $886 million in assets under management. PEY tracks the NASDAQ US Dividend Achievers 50 Index.
True to its name, PEY holds 50 high-yield stocks — such as AT&T Inc. (NYSE:T) and Occidental Petroleum Corporation (NYSE:OXY) — and it delivers on the yield at about 3.5%. Since this dividend ETF’s holdings are weighted by yield, its sector composition is not surprising. For example, PEY allocates about 49% of its combined weight to the high-yield utilities and consumer staples sectors.
The ETF also represents a nice avenue for income investors to get exposure to income-generating stocks that are not large-caps as it allocates about 58% of its weight to mid- and small-cap stocks. Adding to the allure of this income ETF, PEY pays a monthly dividend, which can be advantageous when it comes to generating a steady income stream.
Income ETFs to Buy: First Trust STOXX European Select Dividend Index Fund (FDD)
Expense Ratio: 0.60%
Conservative income investors looking to broaden their dividend horizons should consider Europe. The region is not only home to a number of markets with equity benchmarks sporting higher dividend yields than the S&P 500 Index, but some of the steadiest ex-U.S. dividend growth markets as well.
The First Trust STOXX European Select Dividend Index Fund (NYSEARCA:FDD) tracks the STOXX Europe Select Dividend 30 Index, which is a dividend-weighted collection of high-yield companies from 18 European nations. FDD impresses when it comes to income as its underlying index has a dividend yield that’s over 5%.
Up 13.4% year-to-date, the $525.5 million FDD features a conservative collection of European nations with the U.K., France and Switzerland combining for over 61% of this income ETF’s geographic weight. Top holdings include names like Royal Dutch Shell plc (ADR) (NYSE:RDS.B) and AstraZeneca plc (ADR) (NYSE:AZN).
Income ETFs to Buy: Oppenheimer Ultra Dividend Revenue ETF (RDIV)
Expense Ratio: 0.39%
For the income investor that wants to really juice the yield opportunity on U.S. stocks, there is the Oppenheimer Ultra Dividend Revenue ETF (NYSEARCA:RDIV). RDIV uses a unique smart beta methodology that is based on culling the 60 highest-yielding stocks from the S&P 500 and then weighting those stocks by revenue.
RDIV’s dividend yield is in the neighborhood of 5%, which is not surprising. What is surprising, however, is that as a large-cap, dividend fund, this income ETF is not excessively allocated to utilities and consumer staples. In fact, RDIV had no consumer staples at the end of the second quarter, but its largest sector weight was 36.3% to consumer discretionary at that time.
RDIV’s top 10 holdings include Dow components Verizon Communications Inc. (NYSE:VZ) and International Business Machines Corp. (NYSE:IBM). RDIV has returned more than 54% since coming to market four years ago.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.