Exchange-traded funds (ETFs) could be an income investor's best friend. They provide much-needed diversification. And some of them generate solid and reliable income.
While there are plenty of alternatives from which to choose, I think a handful of ETFs especially stand out. Here are three high-yield dividend ETFs to buy to generate passive income (listed by descending yield).
1. JPMorgan Equity Premium Income ETF
Two things immediately jump out with the JPMorgan Equity Premium Income ETF (NYSEMKT:JEPI). First is the fund's juicy 30-day SEC yield of 7.52%. Second is that the ETF pays a monthly distribution -- something income investors should especially like.
Another intriguing fact about the JPMorgan Equity Premium Income ETF isn't as obvious. Although its yields are high and it owns a lot of stocks (132 as of May 15, 2024), many of those stocks don't offer high dividend yields or even pay dividends at all. So how does the ETF pay such a lofty yield? It writes out-of-the-money S&P 500 index call options to boost its distributions.
The JPMorgan Equity Premium Income ETF's annual expense ratio of 0.35% seems reasonable based on the strong distribution you'll receive. The fund could also deliver attractive returns. Since its inception, its average annual return has topped 12.2%.
Perhaps the main knock against this ETF is that it hasn't been around very long. JPMorgan Chase launched the fund in May 2020. Despite this relatively short period of operation, though, I think the JPMorgan Equity Premium Income ETF is an excellent pick for more aggressive income investors.
2. SPDR Portfolio S&P 500 High Dividend ETF
If you don't like the idea of an options-oriented ETF, the SPDR Portfolio S&P 500 High Dividend ETF (NYSEMKT:SPYD) could be more up your alley. This fund, operated by State Street, attempts to track the S&P 500 High Dividend Index, which includes the top 80 companies in the S&P 500 with the highest dividend yields.
The SPDR Portfolio S&P 500 High Dividend ETF's top holdings currently include Public Service Enterprise Group, Hasbro, Iron Mountain, Citigroup, and Dominion Energy. Its 30-day SEC yield is a solid 4.52%.
Since its inception in October 2015, the ETF has delivered an average annual return of nearly 8.2%. It could be in a position to continue providing relatively good total returns considering that the average stock in the fund is reasonably priced with a forward price-to-earnings ratio of below 15.1.
Few income investors will complain about the costs associated with the SPDR Portfolio S&P 500 High Dividend ETF. Its annual expense ratio is a low 0.07%.
3. Invesco High Yield Equity Dividend Achievers ETF
What's better than a high-yield dividend ETF? One that also has a growing distribution. That's exactly what the Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY) gives you.
This fund attempts to track the NASDAQ US Dividend Achievers 50 Index. The index includes 50 stocks selected mainly on their dividend yield and consistency in dividend growth. The Invesco High Yield Equity Dividend Achievers ETF's top holdings currently include Altria Group, First Interstate BancSystem, Universal Corp/VA, 3M, and Truist Financial.
The ETF pays a 30-day SEC yield of 4.29%. Its dividend payout has more than doubled over the last 10 years.
Perhaps the biggest negative for the Invesco High Yield Equity Dividend Achievers ETF is its lackluster overall performance. The fund has delivered an average annual return of only 5.83% since its inception in December 2004. Its expense ratio of 0.52% is also higher than the others on our list. Still, this ETF could be an attractive option for income investors seeking growing passive income.
Should you invest $1,000 in JPMorgan Equity Premium Income ETF right now?
Before you buy stock in JPMorgan Equity Premium Income ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and JPMorgan Equity Premium Income ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $566,624!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of May 13, 2024
Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Iron Mountain, JPMorgan Chase, and Truist Financial. The Motley Fool recommends 3M, Dominion Energy, and Hasbro. The Motley Fool has a disclosure policy.
