Seeking 5% Yields? Buy These ETFs

The post-election rally in U.S. stocks may lose momentum as investors start to book profits, according to strategists at Citigroup Inc, as quoted on Bloomberg. Last week, a wave of bullish bets boosted exposure to the S&P 500 to its highest level in three years, noted Chris Montagu and his team at Citigroup, as reported by Bloomberg. The S&P 500 reached a record high last week, spurred by hopes that President-elect Donald Trump’s “America First” policies would support domestic assets.

Investor optimism has driven long positions in both the technology-heavy Nasdaq 100 and the small-cap Russell 2000, showing what strategists call “an extremely bullish outlook.” However, Montagu’s note dated Nov. 11 warned that this elevated profit level for the S&P and Russell indexes may lead to near-term profit-taking, potentially capping further gains.

Also, some investors continue to fear that huge artificial intelligence (AI) investments made by big tech companies will pay off later than expected. The scale of profitability of these investments is also unknown now, while the high valuation of some AI stocks is a concern for many investors.

Meanwhile, the ongoing Fed policy easing and the resultant decline in bond yields should boost the demand for high-income assets. Note that the benchmark U.S. treasury yield dropped to 4.30% on Nov. 8, 2024, from 4.37% recorded at the start of the month.

Time for High Dividend ETFs?

High-dividend stocks and exchange-traded funds (ETFs) provide investors with avenues to make up for capital losses, if that happens at all. Against this backdrop, below we highlight a few dividend ETFs that currently yield more than 5%.

The SPDR S&P 500 ETF Trust SPY, which yields 1.17% annually, added 1.3% past week (as of Nov. 12, 2024). Some of these dividend ETFs outperformed the SPY ETF in the past week or returned almost in line with the S&P 500.

ETFs in Focus

Invesco S&P SmallCap High Dividend Low Volatility ETF XSHD – Yields 7.06%; Up 0.5% Past Week

The underlying S&P SmallCap 600 Low Volatility High Dividend Index comprises 60 securities on the S&P SmallCap 600 Index that have historically provided high dividend yields with lower volatility over the past 12 months. The ETF XSHD charges 30 bps in fees.

Global X Alternative Income ETF ALTY – Yields 7.02%; Up 1.0% Past Week

The underlying Indxx SuperDividend Alternatives Index tracks the performance of among the highest dividend yielding securities in each category of alternative investments, as defined by the Index Sponsor. The ETF ALTY charges 50 bps in fees.

Pacer Metaurus US Large Cap Dividend Multiplier 400 ETF QDPL – Yields 5.28%; Up 1.4% Past Week

The Metaurus US Large Cap Dividend Multiplier Index Series 400 has two components, an S&P 500 Index component and a dividend component consisting of long positions in annual futures contracts that provide exposure to ordinary dividends paid on the common stocks of companies on the S&P 500. The ETF QDPL charges 60 bps in fees.

Invesco KBW High Dividend Yield Financial ETF KBWD – Yields 11.81%; Up 0.9% Past Week

The underlying KBW Nasdaq Financial Sector Dividend Yield Index is dividend yield-weighted. It seeks to reflect the performance of approximately 24 to 40 publicly listed financial companies engaged in providing financial services and products, including banking, insurance and diversified financial services, in the United States. The ETF KBWD’s expense ratio is 2.02%.

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