Usually at this time of the year, all that most are thinking about is how to spend, spend and spend some more.
From Black Friday to Black November all the way through to the last-minute shopping on Christmas Eve, right now the focus is on finding great gifts for friends and loved ones at bargain prices.
So to make sure that you can afford to pay for all of that shopping, but to also start to rebuild your cash hoard, I’m going to show you ten quick and easy exchange-traded funds (ETFs) that offer plenty of yield that will stuff your portfolio like a grand stock market cornucopia.
The key, of course, is to not just eyeball the dividend yields, but to also understand where the cash for the dividends is coming from and how it will keep coming long after your family’s Thanksgiving meal’s leftovers are finished and even to Thanksgiving holidays years from now.
The iShares Mortgage Real Estate Capped ETF (BATS:REM) is from BlackRock one of the largest asset managers in the world and a leader in ETF development and management. The Mortgage Real Estate Capped ETF tracks the FTSE NAREIT All Mortgage Capped Index. The index tracks residential and commercial real estate companies including property-owning REITs and mortgage REITs.
The ETF while suffering initially as it was launched into the financial crisis of 2007-2008 has been a strong and steady performer. Yet, even including the initial challenges the ten-year performance has been a positive 20.05% with the trailing three-year performance averaging over 11.7%.
With the index comprises of several high-performing and higher dividend REITs – the yield is currently running at 9.35%.
And with the portfolio running the spectrum of commercial, residential, hospitality and mortgage-owning assets, the ETF provides a balance against any singular challenge in the U.S. real estate market.
The YieldShares High Income ETF (NYSEARCA:YYY) is an interesting fund that tracks the ISE High Income Index. The index tracks 30 closed-end funds in the U.S. market offering higher yields that are trading at a discount with the addition of ample liquidity to control market volatility risks.
I’ve always been a fan of closed-end funds. The structure of these is that they come to the listed market much like a regular company with an IPO for a set amount of capital. Then management invests in stocks, bonds and other assets per their focus.
The advantage is that management doesn’t have to worry about inflows and outflows – so that they can focus on the best investments without diluting existing shareholders during favorable inflows like an open-ended mutual fund. And management doesn’t have to worry about selling at the wrong times to deal with redemptions.
This means that they can focus on returns. And the collection of closed-end funds inside the tracking index is focused on income. With 74% in funds in bonds and 26% in income-producing stocks, the YieldShares High-Income fund provides plenty of current income along with some appreciation along the way.
And since the index picks the funds that are trading at a discount to the underlying assets – that flows through to the ETF with a current discount of nearly 6.5% meaning that you can buy this ETF effectively at 93.5 cents on the dollar. And with its yield running at 7.45% it will pad your portfolio with ample amounts of income.
And since coming to the market, the ETF has been not only delivering the income but also gains with an average annual return running at 8.45% per year.
The Alerian MLP ETF (NYSEARCA:AMLP) tracks the Alerian MLP Infrastructure Index. The index, in turn, tracks 25 U.S. energy infrastructure Master Limited Partnerships. These include crude oil and natural gas pipelines as well as gathering, processing and storage of the petro-products.
So, these are the toll-takers of the U.S. energy markets. And while not entirely immune to the volatilities of the petroleum markets – they are significantly more insulated from the potential of lower oil and gas prices.
As toll-takers, these MLPs collect income on a daily basis by transporting and processing petroleum. Then, in turn, they pass through the majority of the income to shareholders in the form of typically higher dividend distributions. And there are added benefits. Because they are set up as passthroughs, they do not have to pay corporate income tax. This means more cash for higher dividends.
And as passthroughs, they also pass through tax deductions including depreciation on equipment and other expenses. So, that means for much of the income paid in distributions those distributions are shielded from current income tax liability making the effective after-tax yields even higher.
Alerian has been a specialist in this area of the market for a long time. And the ETF streamlines the process of investing in this vital and high-cash generating segment of the petrol patch.
With the market a bit softer for petrol stocks, the index is now down for the year making for a great bargain buy. And with a dividend yield running at a near 11% yield this ETF makes for a great holiday cash generator.
The PowerShares Global Listed Private Equity Portfolio (NYSEARCA:PSP) tracks the Red Rocks Global Listed Private Equity Index and is managed by Invesco. The Index tracks listed investment companies that invest in private firms. The companies are located primarily in the U.S. with additional investment companies in Europe and Asia.
They operate as Business Development Companies (BDCs), passthroughs including Limited Liability Companies (LLCs) as well as other corporate structures. The common theme is that they each take equity positions, or full ownership as well as making loans to privately held firms.
These companies tend to operate much like smaller versions of Warren Buffet’s Berkshire Hathaway (NYSE:BRK.B) in that they leverage their financial strength to build up their portfolios with lots of quality underlying companies and work to enhance and develop them.
Then they can either continue to benefit from cash flows or they can cash out in an exit strategy capitalizing on gains from the sales.
The benefits of the ETF is that you get a broad collection of these private equity companies as well as benefitting from a global collection of underlying assets.
The exchange-traded fund has a good track record of a higher dividend yield that is currently yielding in excess of 8%. And the overall performance of the ETF shares gaining some 35% over the past five years.
The VanEck Vecto High Income Infrastructure MLP ETF (NYSEARCA:YMLI) tracks the Solactive High Income Infrastructure MLP Index. This is a similar collection of pass-through companies as the Alerian MLP ETF that are focused on the natural gas and oil infrastructure markets.
As with the Alerian, the ETF has many advantages as the underlying companies pass through the majority of their profits without having to pay corporate taxes – which provides more cash for higher distributions than ordinary corporations.
And the underlying companies also pass through tax deductions that in turn reduces the current income tax liabilities of the distribution dividend payments. This means that a portion or all of the dividend payouts are shielded from tax liability making them more valuable when paid.
The ETF pays a dividend yielding over 7.5%. And while the prices of the underlying pipeline and processing companies in the natural gas and oil businesses have been down – that makes this alongside the Alerian ETF as bargain buys of crucial infrastructure assets in the U.S. and Canadian economies.
The PowerShares KBW High Dividend Yield Financial Portfolio (NASDAQ:KBWD) tracks the KBW Nasdaq Financial Sector Dividend Yield Index. KBW owned by Stifel Financial (NYSE:SF) is the nation’s leading bank and financial services specialists that create the benchmark indexes for the financial services and banking companies.
The ETF invests in companies in the index that are in the middle and smaller markets for business, mortgage and consumer financial services including loans investments and payments.
This segment of the market has been a relatively reliable generator of cash flows and continues to benefit from the eased credit markets. In addition, given the structures of their loan portfolios, they should be expected not only to be hedged against potentially rising interest rates but may well capitalize on higher rates.
Cash flows for the underlying companies remain strong resulting in a higher level of dividends. The result is a yield that currently near 9%. And the fund’s price history shows relative stability for the current year.
The First Trust Preferred Securities and Income ETF (NYSEARCA:FPE) is one of the relatively newer “active” ETFs that do not track an index, but rather track the securities chosen by the asset manager.
First Trust has been a specialist in income investing and has a series of closed-end funds that have performed well. With the ETF, First Trust provides easy access to the liquid market for exchange-traded funds, arguably with the potential for closer to net asset values for the fund.
The ETF focuses on one of the best parts of the stock market for dividend investors. Preferred shares provide the locked-in dividend flows along with the ability to appreciate based on the success of the underlying companies.
And preferred shares also provide more stability during market downturns with the stated and typically higher dividend yields.
The ETF tracks a collection of financial companies, industrials, energy companies and others that are primarily based in the U.S. with additional securities primarily in Europe.
Over the past three years, the ETF has generated average annual gains of nearly 8% while paying a nice 5.4% dividend yield which is more than two and one-half times the yield of the general market.
The Pimco 0-5 Year High Yield Corporate Bond Index ETF (NYSEARCA:HYS) trades the Bank of American Merrill Lynch 0-5 Year High Yield Constrained Index. This index focuses on U.S. corporation bonds with maturities from less than one year to no more than five years.
This means that investors tracking this index get the advantages of higher-yielding bonds from lesser credit-rated companies with less risk of rising interest rates and less risk of default given the short maturities.
With credit markets hungry for yield, corporate bonds continue to remain in demand with higher yielding bonds being bought with even more zeal. This is resulting in a buoyant market that continues to attract more investment.
And for individual investors seeking higher yields – the ETF delivers with a current dividend yield of 4.4%. Moreover, with the short maturities of the underlying bonds – both interest rate and credit risks are mitigated.
This makes this ETF a great alternative for savings or money market cash with controlled risk run by Pimco with some of the best in the bond business.
The WisdomTree Negative Duration High Yield Bond Fund (NASDAQ:HYND) tracks the same index as the Pimco ETF with the Bank of American Merrill Lynch 0-5 Year High Yield Constrained Index. But it adds an additional risk protection by shorting near-term U.S. Treasury securities.
The effect is that investors get the benefit of higher yields offered by shorter-term corporate bonds and the protection against even the low rate of rising interest rate risk.
Duration is a measurement of yield and price risk for bonds. The longer the duration, the greater the risk in price movements against a movement in market yield. So, by reducing duration to zero or less than zero, the ETF can make the portfolio almost immune to interest rate risk. So for those investors really seeking to lock down risk while still getting a significantly higher yield than for money market funds – this ETF makes a compelling case.
The yield is running currently at 5.22% and the shares have been trading fairly flat with a minor gain this year of less than 0.5%.
The MSCI SuperDividend Emerging Markets ETF (NYSEARCA:SDEM) follows the MSCI Emerging Markets Top 50 Dividend Index.
The ETF picks from the 50 highest dividend paying stocks in markets around the globe. This means generally higher dividends from a wide-spread of companies and industry in varied markets making for controlled market risks.
The U.S. market has been attracted so much cash that arguably the market is well ahead of the underlying economic growth of the nation. And in much of the emerging and transitioning markets, the economies are expanding at a greater pace, with the stock markets trailing the underlying growth.
This means bargain buys for some of your U.S. stock market capital. Taking some of the gains from the U.S. and moving it to where the markets are much cheaper and the dividends are more attractive is the primary case for this ETF.
Yielding a bit more than 5% which is multiples of the yield of the U.S. S&P 500 index the ETF continues the beginning of its upward price march with gains for the past year running at just shy so far of 10%.
As of this writing, Neil George did not hold a position in any of the aforementioned securities.