High dividend yield ETFs: 3 top picks for income investors

 

Investors have increasingly sought high dividend yield ETFs in recent years as interest rates remained low, making it challenging to generate sufficient income from traditional investments like U.S. Treasuries. 

However, with interest rates now at their highest since the financial crisis, finding fixed-income ETFs that offer attractive yields has become slightly easier. But what about equity ETFs? 

Which high-yield ETFs are worth considering for those looking to invest in stocks?

When evaluating high dividend yield ETFs, it's essential to consider those that yield at least 2-3 times the average dividend yield of the S&P 500, which currently stands at 1.54%. Striking a balance between high yield and maintaining quality is crucial. 

Here are three high dividend yield ETFs that fall within the range of 3.1% to 4.62% and offer compelling investment opportunities:

Schwab US Dividend Equity ETF (SCHD)

• Tracks the Dow Jones U.S. Dividend 100 Index

• 102 stocks with a market capitalization averaging $149.2 billion and a price-to-earnings ratio of 13.9x

• Industrials, healthcare, and financials are the top three sectors by weighting

• Approximately 70% of the portfolio consists of companies with market caps of $70 billion or higher

• PepsiCo is the top holding, accounting for 4.6% of the ETF's net assets

iShares Select Dividend ETF (DVY)

• Tracks the Dow Jones U.S. Select Dividend Index

• 100 of the highest dividend-yielding U.S.-listed stocks

• To qualify, a stock must have a dividend per share higher than its five-year average, a dividend coverage ratio of 167% or greater, and a positive trailing 12-month EPS, among other criteria

• 100 stocks with an average weighted market capitalization of $26.0 billion and a price-to-earnings ratio of 11.9x

• DVY primarily focuses on mid-cap stocks, which account for 64% of its net assets

Vanguard FTSE Emerging Markets ETF (VWO)

• Offers an attractive dividend yield of 3.8%

• Tracks the FTSE Emerging Markets All Cap China A Inclusion Index

• Stocks from emerging markets such as China, Brazil, Taiwan, and South Africa

• Despite emerging markets stocks underperforming in the past five years, VWO provides a low-cost option to potentially capitalize on a resurgence in these stocks

• 5,710 stocks with a median market cap of $18.5 billion

• China, Taiwan, and India are the top three countries by weighting

Tips for Investors

• Consider your investment goals and risk tolerance before investing in any ETF.

• High dividend yield ETFs are not without risk. The companies they invest in may experience periods of declining earnings or dividend cuts.

• It's important to diversify your portfolio by investing in a mix of ETFs, including those that focus on different sectors, asset classes, and countries.

• Rebalance your portfolio periodically to ensure that it still aligns with your investment goals.

I hope this information is helpful.