When it comes to high-yield ETFs, it pays to think beyond the usual dividend stock funds. After all, the average yield across the S&P 500 index of large-cap stocks is a mere 1.4% at present.
Furthermore, the largest dividend ETF by assets – the Vanguard Dividend Appreciation ETF (VIG), which carries nearly $78 billion of client money – offers a mere 1.8% yield. Put another way, even if you had a $1 million investment, you'd generate $18,000 in income annually via this fund. That's nowhere near what most folks need to live a comfortable retirement.
How we chose the best high-yield ETFs to buy
The following six high-yield ETFs all take income much more seriously. Specifically, our methodology for finding the best ETFs to buy includes looking for funds that offer yields of at least 6%, quadrupling the yield of the S&P 500. Furthermore, we looked for exchange-traded funds that have at least $250 million in assets under management and are well-established.
Keep in mind that the dividend yields on equity ETFs represent the trailing 12-month yield, which is a standard measure for stock funds. There is no guarantee that future distributions will keep up or that any potential share price declines offset any of the income you receive.
That said, if you're not opposed to such risk, then these high-yield ETFs are worth considering because of their much more generous approach to income than the typical large-cap stock fund.
- Assets under management: $271.9 million
- Dividend yield: 11.4%
- Expenses: 0.43%, or $43 annually on every $10,000 invested
The VanEck Mortgage REIT Income ETF (MORT) focuses on stocks with the highest dividend yields in the real estate sector that are structured as real estate investment trusts, or REITs. These firms don't own property directly but invest in mortgages and mortgage-backed securities instead.
As interest rates and borrowing costs increased, these "mREITs" took it on the chin because they typically borrow big to invest in mortgage-related assets. But the sector has stabilized – even if it has underperformed in 2024 – and investors are starting to get back into this corner of the high-yield marketplace. With a double-digit payout, it's no secret as to why.
Just remember that this is one of the riskiest high-yield ETFs featured here because it is laser-focused on a volatile subsector of the real estate market. What's more, it has a portfolio of only 25 total stocks that may move in lockstep in the wrong direction if conditions sour.
Learn more about MORT at the VanEck provider site.
- Assets under management: $4.3 billion
- Dividend yield: 6.2%
- Expenses: 0.51%
While big-name blue chips in the U.S. are the natural choice for most dividend investors, international companies often offer more generous payouts than domestic companies. That's in part because mega-cap tech stocks in the U.S. are a bit stingy, while traditional firms that dominate foreign indexes have a history of sharing the wealth.
That said, these stocks can be a hassle to research and often pay twice or even only once per year. Thankfully, the iShares International Select Dividend ETF (IDV) cuts out these challenges by providing strong income potential without the hassle of managing individual positions in international stocks.
This high-yield ETF's 100-stock portfolio includes Australian mega-miner BHP Group (BHP), French energy giant Total Energies (TTE) and U.K. tobacco giant British American Tobacco (BTI), to name a few. These established large-cap income players are similar to U.S. blue chip stocks even if they're less familiar, and they offer significantly higher dividend yields than domestic peers.
Learn more about IDV at the iShares provider site.
- Assets under management: $802.5 million
- Dividend yield: 10.9%
- Expenses: 0.58%
As its name implies, the Global X SuperDividend ETF (SDIV) looks to cover all corners of the market that provide above-average yield. That includes every sector and geography, too.
Only about a third of SDIV's assets are in the U.S. right now, with approximately 18% in China and Hong Kong combined. It also has allocations of less than 6% across dozens of other nations. The ETF is also heavily weighted toward financials with 23% of assets in this sector, followed by 19% in energy. But it really has a bit of everything.
Don't be fooled into thinking this apparent diversification means SDIV is low risk, however, as these are aggressive dividend players regardless of where the firms are headquartered or what they do as businesses. Still, if you're looking for an unconstrained approach, SDIV is one of the most popular and flexible options among high-yield ETFs.
Learn more about SDIV at the Global X provider site.
- Assets under management: $750 million
- Dividend yield: 8.8%
- Expenses: 3.08%
First things first: By a large measure, the Invesco CEF Income Composite ETF (PCEF) is the most expensive of the six high-yield ETFs discussed here. However, it provides one of the few ways to invest in the universe of closed-end funds via a single, diversified position.
PCEF is made up of 110 different securities with each operating like private investment funds, trading high-yield securities and option strategies to generate yield.
Buying individual closed-end funds can be a challenge and requires much research, but this Invesco ETF takes the guesswork out of that exercise via a single, diversified holding to play this asset class.
While share prices never soar – due in part to the high expenses – the big-time yield of PCEF, along with its focus on an alternative asset class, make it worth considering.
Learn more about PCEF at the Invesco provider site.
- Assets under management: $14.4 billion
- SEC yield: 6.5%*
- Expenses: 0.46%
While the iShares Preferred & Income Securities ETF (PFF) owns a piece of popular dividend-paying companies, it's unique in that it holds preferred stock rather than common stock.
What's the difference? Well, preferred stock is a kind of hybrid between stocks and bonds, offering the stability and income potential of conventional bond offerings of corporate debt. However, they also have a bit more risk because they are not protected in the event of default in the same way stocks are excluded from bankruptcy proceedings.
Owning preferred stock directly is very difficult for smaller investors, so this iShares fund is a great way to provide accessibility into this more exclusive asset class.
Just keep in mind that large enterprises often issue preferred stock, much like bonds, to raise capital – as a result, the preferred stock ETF skews toward the financial sector, with nearly three-quarters of its assets tied up in big bank stocks such as Wells Fargo (WFC), Citigroup (C) and Bank of America (BAC).
But considering the yield is more than double most other financial sector ETFs, PFF may be a more income-rich way to play these kinds of stocks if you're interested in exposure to big banks.
* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.
Learn more about PFF at the iShares provider site.
- Assets under management: $8.3 billion
- SEC yield: 7.5%*
- Expenses: 0.40%
"High-yield bonds" – also known as junk bonds for their lack of creditworthiness – are a popular way to tap into income. The SPDR Bloomberg High Yield Bond ETF (JNK) is one of the most popular ways to access this corner of Wall Street.
Its portfolio is made up of about 1,200 or so high-yield bonds from distressed corporations, including privately held companies like telecom DirecTV and healthcare equipment company Medline that cannot access equity markets for new capital.
In order to win loans, these companies pay significantly higher interest levels on their debts to offset that elevated risk. That's a double whammy because this debt can be expensive. If the broader organization is already struggling to come up with cash then a small stumble in the macroeconomic picture could cause trouble.
Still, if you're seeking out the best high-yield ETFs, it's hard to argue with the big-time payouts of JNK.
Learn more about JNK at the State Street Global Advisors provider site.
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- Assets under management: $33.4 billion
- Dividend yield: 7.9%
- Expenses: 0.35%
Perhaps the most unique among the best high-yield ETFs featured on this list is the JPMorgan Equity Premium Income ETF (JEPI, $57.55). This tactical fund is similar in many ways to your regular run-of-the-mill blue chip dividend stock fund.
Its underlying portfolio holds about 100 of the usual suspects you'd expect to see on a list of dividend stocks, including drugmaker AbbVie (ABBV) and credit card giant Visa (V).
However, JEPI also employs covered calls – options that are sold to collect a premium – to supercharge the dividends on those stocks. And the extra premiums from those options contracts help add up to a tremendous yield. Indeed, JEPI throws off a yield more than six times the broader S&P 500!
Covered call options are typically "out of the money," meaning the current price is already trading moderately below the target price – meaning the only way these options are executed is if the stock market stages a big rally.
But that's a pretty good thing for JEPI since it is selling call options to other investors rather than buying them. And the extra premiums from those options contracts help add up to a tremendous yield.
Perhaps unsurprisingly, there is a trade-off here. The options sold on these stocks limit upside if and when the market surges higher. But thanks to this strategy of harvesting options, JEPI declined less than the broader market in 2022.
Learn more about JEPI at the J.P. Morgan provider site.
- Assets under management: $14.8 billion
- SEC yield: 6.5%*
- Expenses: 0.46%
Looking beyond the various ways to slice up common stock, the iShares Preferred & Income Securities ETF (PFF, $32.45) is the largest and most liquid way for regular investors to play "preferred" stock. This asset is a kind of hybrid between stocks and bonds, offering the stability and income potential of conventional debt offerings but also a bit more risk as it isn't protected in the event of default in the same way stocks are excluded from bankruptcy proceedings.
Typically, preferred stock is issued by large and capital-intensive enterprises. So perhaps unsurprisingly, PFF is skewed toward the financial sector, with about three-quarters of its assets tied up in these institutions. The rest is mostly allocated toward industrial stocks or utilities that need cash for big projects.
PFF has struggled in recent years as higher interest rates created larger rates of return on these kinds of interest-bearing assets. And, as with bonds, older-dated preferred stock with a lower yield has been deeply discounted as investors are more interested in new offerings rather than the secondary market for old preferreds.
However, the ETF has since stabilized since then and is up about 15% since late October.
The bottom line is that if you buy and hold, these companies will certainly be there in the long run. At present, top holdings in this high-yield ETF include preferred stock from icons like Wells Fargo (WFC) and Citigroup (C), along with deep-pocketed utilities like Nextera Energy (NEE).
* SEC yields reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds.
Learn more about PFF at the iShares provider site.
- Assets under management: $15.5 billion
- SEC yield: 5.8%
- Expenses: 0.49%
We've talked a lot about equity-driven income investments so far, but no list of the best high-yield ETFs would be complete without a fund of "junk" bonds.
That's what investors get with the iShares iBoxx $ High Yield Corporate Bond ETF (HYG, $77.82). This fund leads its category when it comes to assets under management and is made up of about 1,200 or so high-yield bonds from distressed corporations.
There's more risk in these businesses, which include music streaming company Sirius XM Radio (SIRI) and billboard advertiser Clear Channel Outdoor Holdings (CCO) among others. But in order to entice lenders, these companies pay significantly higher interest levels on their debts to offset that elevated risk.
It's also worth noting that while you might be in trouble if you own a handful of individual junk bonds, a diversified ETF like HYG helps smooth things out. If the broader economy slows significantly, there's a chance that many companies will take a spill. However, if only a handful run into trouble, then there's plenty of other bonds in this high-dividend ETF to ensure the generous payouts keep rolling in.
Learn more about HYG at the iShares provider site.
It's important to acknowledge that when it comes to investing, all decisions are personal. There is no one-size-fits-all approach to your current savings or your future retirement.
However, "[o]ne of the best and simplest ways to build a diversified portfolio is through using exchange-traded funds (ETFs), which give you access to hundreds of stocks in a single fund at very low fees," writes Kiplinger contributor Will Ashworth in his article, "How to Invest in ETFs for Beginners."
