For investors in or near retirement, there’s only one thing that really matters: income with a capital “I.” Without it, even the best-laid retirement plans can’t happen. One of the hardest portions of retirement is turning your hard-earned savings into a steady stream of income. Luckily, dividend ETFs can do just that.
Thanks to the explosion and adoption of new products, there are now hundreds of different dividend ETFs that can provide a steady stream of income from your portfolios. These funds also cover a wide range of asset classes from stocks to bonds and everything in between. The best part is that many of these dividend ETFs pay monthly. This allows for either faster compounding or the ability to actually fit your income stream into your life. After all, your cable bill, car insurance and other expenses come every month.
Dividend ETFs can make all this a piece of cake.
With so many choices among dividend funds, the task to find just the right ETF can be daunting. But, luckily, we here at InvestorPlace have done some of the heavy lifting. The following five dividend ETFs all provide oodles of income paid on a monthly schedule.
WisdomTree U.S. Total Dividend Fund (DTD)
Dividend Yield: 2%
For investors, a hefty dose of equity income makes a ton of sense these days. With the Fed lowering interest rates, many bonds and cash-like holdings still aren’t paying very much. Meanwhile, the interest these sectors throw off are subjected to higher tax rates than dividends. And finally, dividends do have the ability to grow over time. The combination of these factors makes equity income a top spot to gain retirement income.
The WisdomTree U.S. Total Dividend Fund (NYSEArca:DTD) could be one of the best ways to do just that.
The key for DTD comes down to its portfolio. Unlike many dividend ETFs, DTD covers the entire market from small-caps to larger giants. That’s important as smaller firms can provide plenty of income as well. Many investors ignore this opportunity and are missing out on some serious dividend growth potential.
The fund captures this opportunity by using a proprietary smart-beta index that screens and weights firms by the number of dividends they are projected to pay in the upcoming year. Currently there are roughly 878 stocks in the ETF. This broad portfolio produces a 2% yield which it hands out monthly to its investors.
It also produces plenty of total returns. Over the last decade, DTD has managed to return 12.78% annually. And thanks to its focus on dividends, it has managed to be less volatile than the broader market as well.
All in all, when it comes to monthly dividend ETFs, DTD offers a broad core option for equity income. Expenses run at 0.28% or $28 per $10,000 invested.
Invesco CEF Income Composite ETF (PCEF)
Dividend Yield: 8.37%
Some of the best monthly dividend ETFs can be found in some quirky asset classes. And you can’t get much quirkier than closed-end funds (CEFs). Like ETFs, CEFs trade throughout the day on exchanges. The kicker is that closed-end funds issue a set number of shares when launched and they can trade at discounts to their actual values (NAVs). The benefit is that this potential discount and ability to use some leverage can help them boost yields.
The problem is that closed-end funds can be hard to gauge and understand. Which is why an ETF like the Invesco CEF Income Composite ETF (NYSEArca:PCEF) is amazing for dividend-seekers.
PCEF tracks a basket of CEFs that are trading at discounts to their net asset values. Currently, the fund’s 136 holdings are trading for a discount of 4.90%, so the fund has done much of the hard work for you. Secondly, it hones in only on taxable bond and equity option writing strategy CEFs. These are the kind that generally throw off all the income. With the NAV discount and focus on income-producing CEFs, PCEF is a monster yielder at 8.37%. And it pays that distribution monthly.
Performance for the fund has been pretty much driven by that high yield. But, for those investors in retirement and seeking income, that’s just fine. Despite being quirky, the ride for PCEF has been pretty smooth.
With a management fee of only 0.50%, PCEF is a good choice to add a some ignored CEF income to a portfolio.
iShares National Muni Bond ETF (MUB)
Dividend Yield: 2.29%
For most investors, not all their nest egg is tied up in tax deferred accounts like a 401k or IRA. Plenty of people these days use taxable or regular brokerage accounts to fund their lives. Here, it’s critical to keep Uncle Sam’s icy grasp away from your savings. For those looking to generate monthly income, the answer to this problem lies with municipal bonds.
Munis offer plenty of Federal tax-free income and may even provide state tax benefits as well. For taxable accounts and higher earners, Munis simply are a must. With nearly $15 billion in assets, iShares National Muni Bond ETF (NYSEARCA:MUB) is king of the muni ETFs.
With that heft, MUB holds over 4,100 investment-grade municipal IOU’s. That provides plenty of diversification benefits as well as sufficient tax-free income. The dividend ETF is currently paying 2.29%. That’s already more than the 10-year treasury bond and it’s tax free. Someone in the highest tax brackets would need to earn well over 4% to get the same amount of income post-taxes.
Meanwhile, the ETFs share price has been pretty steady over the years. This underscores the fund’s mission of providing tax-free monthly income to its investors.
With expenses of just 0.07% and swift trading volume, MUB could be one of the best monthly dividend ETFs to own in a taxable account.
Global X SuperIncome Preferred ETF (SPFF)
Dividend Yield: 8.22%
Blending both stock and bond-like qualities, preferred stock can be a great place to find income in retirement. The only issue is that the cat is out of the bag. Many preferred stocks are now trading to premiums to their call values or at much lower yields than before. The Global X SuperIncome Preferred ETF (NYSEArca:SPFF) could be the answer to many investors prayers.
SPFF mission is simple: own the 50 highest-yielding preferred stocks trading in the U.S. and Canada. Top holdings include securities from Ally Bank (NYSE:ALLY) and J.P. Morgan (NYSE:JPM). All in all, the dividend ETFs focus on yield and concentration creates a hefty 8.22% yield that’s paid monthly. This eliminates the hassle of finding high-yielding preferred stock on your own.
And while there is some risk — it owns the highest-yielding preferreds — the nature of preferred stock and its preference in bankruptcy proceeding reduces some of the risks. Firms like JPM aren’t exactly going away any time soon. With that, the risk/reward proposition for SPFF is pretty good.
The way to use SPFF could be a supplement to a broader dividend ETF like the previously mentioned DTD to boost a portfolio’s yield a bit further. With low expenses of 0.58% and around $200 million in assets, SPFF makes a good choice as that supplement.
First Trust Multi-Asset Diversified Income Index Fund (MDIV)
Dividend Yield: 6.29%
Given the sheer number of asset classes that have the potential to pay a good monthly dividend, a broad approach could be the number option for investors. The First Trust Multi-Asset Diversified Income Index Fund (NYSEArca:MDIV) is wonderful way to get all that exposure in one ticker.
MDIV tracks the NASDAQ US Multi-Asset Diversified Income Index. This benchmark provides exposure to equities, real estate investment trusts (REITs), preferred stock, master limited partnerships (MLPs) and a high yield corporate bonds within one ticker. Exposure to each of these asset classes is capped at 20% each and MDIV uses various screens under each asset class to choose its holdings. Currently, MDIV holds 123 different securities with its high-yield bond portion coming from the First Trust Tactical High Yield ETF (NYSEArca:HYLS), which itself is a monthly dividend-paying ETF.
By using MDIV, investors can get access and a 6.29% monthly check from some of these esoteric asset classes. However, the thing to remember is that this ETF isn’t exactly risk-free. Some of its holdings like junk bonds and MLPs can be pretty volatile. The fund is not the place where you want to stick your entire net worth.
Another reason not to own a ton of it is that MDIV is on the expensive side when it comes to ETFs with a expense ratio of 0.71%. But, for a portion of your savings, MDIV could provide a nice boost to your income and make the higher expenses worth it.
At the time of writing, Aaron Levitt was long MUB.