With exchange-traded funds (ETFs) generating solid performances over the long run, it stands to reason that investors should consider income-generating ETFs to buy. Basically, all the benefits associated with these wide-canvas plays for capital gains apply to dividends as well.
For example, one of the main reasons why retail investors consider “regular” ETFs to buy is that a purchase typically covers a basket of securities. If a few ideas don’t perform as expected, then other ideas in the overall holdings can help buttress the investment. It’s the same principle with passive income.
Yes, you can select one dividend-paying company. However, if that particular business goes down, you may be out of luck. On the other hand, buying an income-generating fund can potentially mitigate this exposure risk. With that in mind, below are three ideas to consider for ETFs to buy.
iShares International Select Dividend ETF (IDV)
One of the top ideas for generating robust yield, the iShares International Select Dividend ETF (BATS:IDV) tracks the investment results of the Dow Jones EPAC Select Dividend Index, according to its prospectus. IDV will usually invest at least 80% of its assets in the component securities of the underlying index. Geographically, it’s tied to global markets, with the Eurozone representing 43.1% of the total holdings.
In terms of sector weighting, the biggest sector is financial services at 30.75%. Next up is the utilities space at 16.1%, followed by communication services at 11.32%. Other areas that receive significant coverage are basic materials (10.15%), energy (9.33%) and consumer cyclical (7.53%).
As for the passive income, IDV offers an annual dividend of $1.84 or a yield of 6.26%. It’s a quarterly paying ETF with a payout ratio of just under 35%. Further, it’s witnessing dividend growth of 0.25%.
Fundamentally, the risks center on the potentially greater volatility of the global market. However, with a yield of over 6%, it would be hard to dismiss IDV. It’s one of the ETFs to buy.
SPDR Bloomberg High Yield Bond ETF (JNK)
A risky but intriguing idea for ETFs to buy, the SPDR Bloomberg High Yield Bond ETF (NYSEARCA:JNK) seeks to provide results that correspond generally to the overall performance of the Bloomberg High Yield Very Liquid Index. Per its prospectus, the index itself aims to measure the performance of high-yield corporate bonds with above-average liquidity.
Geographically, all ideas listed under JNK are located in the U.S. In terms of individual holdings, the ETF is quite varied, featuring anything from software enterprises to communication specialists to energy-focused companies. However, some of the ideas are downright risky, which is also the appeal of such a fund. By having a basket of securities, if one speculative idea goes down, there are others to hold the fort.
Right now, JNK offers an annual dividend of $6.22, translating to a yield of 6.59%. Notably, this ETF pays monthly, which is something to seriously consider. Dividend growth stands at 5.49%, which is quite robust.
However, one of the risks is that the payout ratio stands at a whopping 130.32%. Further, the expense ratio at 0.4% is relatively pricey compared to the category average of 0.39%. Still, for the yield, it could be one of the ETFs to buy.
VanEck Mortage REIT Income ETF (MORT)
In my opinion the VanEck Mortage REIT Income ETF (NYSEARCA:MORT) easily represents the riskiest idea on this list of ETFs to buy. Per its prospectus, MORT attempts to replicate the price and yield performance of the MVIS US Mortgage REITs Index. The ETF may include the full range of market capitalization, from the smaller entities to the biggest.
In terms of geographic and of course sector, MORT is a non-diversified fund. All the individual holdings call the U.S. home. Every idea is tied to real estate. Naturally, such exposure will put the buyer of these units under potentially enormous risk. Should something go wrong with the housing market, it would likely spark a domino effect.
At the same time, because the housing market is currently stable (somewhat), MORT offers opportunities for speculators. The ETF covers a range of entities that help spread some of the risk while also maintaining a robust dividend.
Right now, MORT pays an annual dividend of $1.27, translating to a yield of 11.25%. While the payout ratio is high at 77.06%, it’s not horrific. Still, aside from the sector risk, MORT is also pricey with a 0.43% expense ratio. Undoubtedly, though, the double-digit yield will tempt some buyers.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
