When it comes to high-yield ETFs, it pays to think beyond the usual dividend stock funds. After all, the average yield across the S&P 500 Index of large-cap stocks is a mere 1.3% at present.
Furthermore, the largest dividend ETF by assets – the Vanguard Dividend Appreciation ETF (VIG), which carries more than $85 billion in assets under management – offers a modest 1.7% yield.
Put another way, even if you had a $1 million investment, you'd generate $17,000 in income annually via this fund. That's nowhere near what most folks need to live a comfortable retirement.
How we chose the best high-yield ETFs to buy
The following six high-yield ETFs all take income much more seriously. Specifically, our methodology for finding the best ETFs to buy includes looking for funds that offer yields of at least 6%, easily outpacing the yield of the S&P 500.
And we looked for exchange-traded funds that have a minimum of $250 million in assets under management and are well-established.
Keep in mind that the dividend yields on equity ETFs represent the trailing 12-month yield, which is a standard measure for stock funds. There is no guarantee that future distributions will keep up or that any potential share price declines offset any of the income you receive.
That said, if you're not opposed to such risk, then these high-yield ETFs are worth considering because of their much more generous approach to income than the typical large-cap stock fund.
Data is as of March 12.
Best high-yield ETFs
| Exchange-traded fund (ticker symbol) | Dividend yield |
|---|---|
| iShares Preferred & Income Securities ETF (PFF) | 6.2% |
| iShares International Select Dividend ETF (IDV) | 6.0% |
| SPDR Bloomberg High Yield Bond ETF (JNK) | 7.0% |
| Invesco CEF Income Composite ETF (PCEF) | 8.6% |
| VanEck Mortgage REIT Income ETF (MORT) | 10.4% |
| Global X SuperDividend ETF (SDIV) | 11.0% |
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iShares Preferred & Income Securities ETF
- Assets under management: $14.4 billion
- SEC yield: 6.2%*
- Expenses: 0.46%, or $46 annually on every $10,000 invested
While the iShares Preferred & Income Securities ETF (PFF) owns a piece of popular dividend-paying companies, it's unique in that it holds preferred stock rather than common stock.
What's the difference? Well, preferred stock is a kind of hybrid between stocks and bonds, offering the stability and income potential of conventional bond offerings of corporate debt. However, they also have a bit more risk because they are not protected in the event of default in the same way stocks are excluded from bankruptcy proceedings.
Owning preferred stock directly is very difficult for smaller investors, so this iShares fund is a great way to provide accessibility into this more exclusive asset class.
Just keep in mind that large enterprises often issue preferred stock, much like bonds, to raise capital – as a result, the preferred stock ETF skews toward financial stocks, with more than 70% of its assets tied up in the sector. Individual equities include JPMorgan Chase (JPM) and Wells Fargo (WFC), though industrial stock Boeing (BA) is the fund's biggest holding.
But considering the yield is more than double most other bank ETFs, PFF may be a more income-rich way to play these kinds of stocks if you're interested in exposure to big banks.
*SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.
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iShares International Select Dividend ETF
- Assets under management: $4.3 billion
- Dividend yield: 6.0%
- Expenses: 0.49%
While big-name blue chips in the U.S. are the natural choice for most dividend investors, international companies often offer more generous payouts than domestic companies.
That's in part because mega-cap tech stocks in the U.S. are a bit stingy, while traditional firms that dominate foreign indexes have a history of sharing the wealth.
That said, these stocks can be a hassle to research and often pay twice or even only once per year. The iShares International Select Dividend ETF (IDV) cuts out these challenges by providing strong income potential without the hassle of managing individual positions in international stocks.
This high-yield ETF's roughly 100-stock portfolio includes U.K. tobacco giants British American Tobacco (BTI) and Imperial Brands and French energy firm TotalEnergies (TTE) name a few.
These established large-cap income players are similar to U.S. blue chip stocks even if they're less familiar, and they can offer significantly higher dividend yields than domestic peers.
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SPDR Bloomberg High Yield Bond ETF
- Assets under management: $8.3 billion
- SEC yield: 7.0%
- Expenses: 0.40%
"High-yield bonds" – also known as junk bonds for their lack of creditworthiness – are a popular way to tap into income. The SPDR Bloomberg High Yield Bond ETF (JNK) is one of the most popular ways to access this corner of Wall Street.
Its portfolio is made up of about 1,200 or so high-yield bonds from distressed corporations, including privately held companies like telecom EchoStar and insurance broker HUB International that can't access equity markets for new capital.
In order to win loans, these companies pay significantly higher interest levels on their debts to offset that elevated risk. That's a double whammy because this debt can be expensive. If the broader organization is already struggling to come up with cash then a small stumble in the macroeconomic picture could cause trouble.
Still, if you're seeking out the best high-yield ETFs, it's hard to argue with the big-time payouts of JNK.
Learn more about JNK at the State Street Global Advisors provider site.
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Invesco CEF Income Composite ETF
- Assets under management: $786.3 million
- Dividend yield: 8.6%
- Expenses: 3.07%
First things first: By a large measure, the Invesco CEF Income Composite ETF (PCEF) is the most expensive of the high-yield ETFs discussed here. However, it provides one of the few ways to invest in the universe of closed-end funds via a single, diversified position.
PCEF is made up of 110 or so different securities with each operating like private investment funds, trading high-yield securities and option strategies to generate yield.
Buying individual closed-end funds can be a challenge and requires much research, but this Invesco ETF takes the guesswork out of that exercise via a single, diversified holding to play this asset class.
While share prices never soar – due in part to the high expenses – the big-time yield of PCEF, along with its focus on an alternative asset class, make it worth considering.
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VanEck Mortgage REIT Income ETF
- Assets under management: $313.3 million
- Dividend yield: 10.4%
- Expenses: 0.43%
The VanEck Mortgage REIT Income ETF (MORT) focuses on stocks with the highest dividend yields in the real estate sector that are structured as real estate investment trusts, or REITs. These firms don't own property directly but invest in mortgages and mortgage-backed securities instead.
As interest rates and borrowing costs increased, these "mREITs" took it on the chin because they typically borrow big to invest in mortgage-related assets. But parts of the sector has stabilized and investors are starting to get back into this corner of the high-yield marketplace.
With a double-digit payout, it's no secret as to why. Just remember that this is one of the riskiest high-yield ETFs featured here because it is laser-focused on a volatile subsector of the real estate market.
What's more, it has a portfolio of only 27 holdings that may move in lockstep in the wrong direction if conditions sour.
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Global X SuperDividend ETF
- Assets under management: $778.8 million
- Dividend yield: 11.0%
- Expenses: 0.58%
As its name implies, the Global X SuperDividend ETF (SDIV) looks to cover all corners of the market that provide above-average yield. That includes every sector and geography, too.
Only about a third of SDIV's assets are in the U.S. right now, with approximately 15% in Hong Kong and 7% in Britain. It also has allocations of less than 6% across a dozen or so other nations, including China and Brazil.
The ETF is also heavily weighted toward financial services and energy stocks, with these sectors making up 27% and 24% of assets, respectively. They're followed by 18% in real estate and 15% in materials. But it really has a bit of everything.
Don't be fooled into thinking this apparent diversification means SDIV is low risk. These are aggressive dividend players regardless of where the firms are headquartered or what they do as businesses.
Still, if you're looking for an unconstrained approach, SDIV is one of the most popular and flexible options among high-yield ETFs.
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Are ETFs a good investment?
It's important to acknowledge that when it comes to investing, all decisions are personal. There is no one-size-fits-all approach to your current savings or your future retirement.
However, "[o]ne of the best and simplest ways to build a diversified portfolio is through using exchange-traded funds (ETFs), which give you access to hundreds of stocks in a single fund at very low fees," writes Kiplinger contributor Will Ashworth in his article How to Invest in ETFs for Beginners.
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