5 ETFs paying fat dividends
If you’re an income investor, your primary concern is finding solid investment vehicles paying out impressive high dividend yields. Sure, there are a lot of individual stocks out there paying good dividends, but trying to determine which stocks are best is often a trying task. Fortunately, the exchange-traded fund (ETF) landscape is wide enough now that you don’t have to venture into individual equities to get a diversified basket of high dividend yield stocks. Today, there are many ETFs that do just that, and the following five are the highest-yielding of the bunch. Also, see my recent story, Get Your Red-Hot Dividends Here.
PowerShares Preferred (PGX)
Topping our list of high dividend yield ETFs is the PowerShares Preferred (PGX). This fund seeks investment results that correspond generally to the price and yield performance of an index called The BofA Merrill Lynch Core Fixed Rate Preferred Securities Index. Basically, with PGX you own preferred stock in some of the best financial companies around, including JP Morgan Chase (JPM), Barclays (BCS) and Wells Fargo (WFC). As of July 31, PGX paid an annual dividend yield of 7.23%.
iShares S&P U.S. Preferred Stock Index (PFF)
In second place is the iShares S&P U.S. Preferred Stock Index (PFF). This fund seeks to track the price and yield performance of the S&P U.S. Preferred Stock Index. Preferred shares held in this ETF include Ford Motor (F), Metlife (MET) and Bank of America (BAC), among many other stellar dividend payers. As of July 31, the annual dividend yield on PFF was 6.92%.
SPDR Wells Fargo Preferred Stock (PSK)
Coming in third on our list of top-yielding dividend ETFs is the SPDR Wells Fargo Preferred Stock (PSK). This fund seeks to replicate as closely as possible the total return of the Wells Fargo Hybrid and Preferred Securities Aggregate index. As of March 30, PSK paid an annual dividend yield of 5.63%.
As you can see, all three of our top-yielding ETFs hold preferred shares. The key difference between preferred stock and common stock is that similar to bonds, the primary source of return in preferred stock is usually generated by a fixed dividend payment that must be paid out before dividends to common stockholders. The structure of preferred shares is one reason why the top three dividend-yield ETFs all feature preferred stock.
Claymore/S&P Global Dividend Opp (LVL)
Our next ETF dividend winner proves that not all high yields require preferred stock. The Claymore/S&P Global Dividend Opp (LVL) seeks investment results that correspond generally to the performance of an equity index called the Benchmarks by Design High Income index. The index consists of a variety of equities, including European Gas (KIO), Franklin Resources (BEN) and Morgan Stanley (MS) common stock. As of July 31, LVL’s annual dividend yield was 4.97%.
WisdomTree Equity Income (DHS)
Rounding out our top-five list is the WisdomTree Equity Income (DHS). Appropriately, this ETF seeks to track the price and yield performance of the WisdomTree Equity Income index. That index tracks many of the biggest large-cap stocks in the market today, including AT&T (T), Chevron (CVX), Pfizer (PFE) and McDonald’s (MCD). With DHS, you get the best of the best in dividend paying common stock. As of July 31, the dividend-yield on DHS was 3.95%.