Advisors: Looking For ETF Yield in the Wrong Places?
When investment advisors and self-directed investors think of earning regular income from their ETF portfolios, the usual suspects probably come to mind. Bonds have the highest yields in years. Dividend stock yields are modest in some parts of the market, but high and risky in other segments.
Small cap stocks could be a source of future stress, with more than one-third of the Russell 2000 index reportedly filled with companies that can only last as long as their ability to refinance their debt. High yield bond ETFs are a classic source that investors have tapped to boost portfolio cash flow. And REITs are typically dividend-investor-friendly. So, is that all there is?
As it turns out, the ETF industry’s breadth of choices for investors is not limited to those looking solely for growth or preservation of capital. There are more potential outlets to pursue above-average dividend yield from ETFs than many investors can imagine. To help folks down the path of considering whether there are other forms of life in the dividend income space, here’s a short list of four ETFs that each produce significant levels of yield.
However, as with any investment, you get what you pay for, and so any security that throws off this much return in the form of dividends should be well-researched before even thinking about owning it. With that disclaimer out of the way, let’s climb the income ladder from lowest to highest yield within this group of four.
Four Dividend ETFs From Uncommon Asset Classes
The First Trust Indxx Global Natural Resources Income ETF (FTRI) yields nearly 5.9%, investing in a 50-stock index diversified across segments including US and non-US businesses in energy, materials, agriculture, water and more.
The InfraCap Equity Income ETF (ICAP) is a good example of why investors cannot afford to completely ignore non-US equities. They may or not be poised to appreciate, but they are cheap and in cases like this, produce a dividend yield currently around 8.7%. ICAP is an actively managed ETF, and it complements a common stock portfolio with holdings in preferred stocks and convertible securities. It also has the flexibility to invest up to 20% in high yield bonds and use options.
The WisdomTree Put Write Strategy Fund (PUTW) uses options too, not as a sidecar, but as the central part of its value proposition. This $94 million ETF pursues a rare approach in the ETF world. It sells put options, which raises cash, while risking that if the S&P 500 drops sharply, those puts may oblige the fund to buy shares of the SPDR S&P 500 ETF Trust (SPY). PUTW has a 5-year annualized return of 8.1% and has a 12-month trailing dividend yield of 8.6%.
Finally, the Putnam BDC Income ETF (PBDC) is another actively managed fund that holds US business development companies. These are entities that invest, lend or otherwise service private companies, or possibly public companies that are very small and highly illiquid. This is a fairly new segment of the ETF industry, though the role these companies play is far from a new idea. PBDC yields more 9.4% and has generated a total return of 32% over the past 12 months.
The hunt for yield is on. And when isn’t it for a certain segment of the investor population? These four ETFs and many others provide a much wider set of potential paths to consider.
