There are several best dividend ETFs available for investors looking for yield to choose from. We will explore our top dividend yield ETFs. Investors must balance top dividend yield with their risk tolerance.
Dividend investing strategies allow investors to buy enough shares of companies or ETFs in order to collect dividends. The income received from dividends can be reinvested by buying additional shares for the long term or put in savings for rainy days or special occasions. Most companies pay dividends on a monthly or quarterly basis.
Dividend ETFs Investing Strategies
Investors must not chase only the dividend yields when they are choosing securities for their investments.
Investors should also consider the stability of the companies, dividend growth, and especially the company’s ability to pay these dividends in the future.
Sometimes, companies may choose to cut these dividends during periods of market uncertainty. There is no point in collecting some dividends at the beginning of your investment and having these dividends cut when you really need them in the future.
Dividend ETF investors should analyze the fees that they are paying, the management type of the fund, asset class, risk, and the average transaction volume.
Dividend ETFs Covered-Call Strategies
Covered-Call strategies work best for very liquid ETFs and have derivatives options. If done strategically, derivatives can allow investors to collect additional income without losing their shares using covered call strategies.
Investors employing covered call strategies will agree to surrender their shares in exchange for a premium.
Investors must own a minimum of a hundred shares before using this strategy.
This derivative strategy is a contract. You will collect a premium for agreeing to sell your shares at a certain price for a specific period.
If the selling price that you have agreed is not reached at the end of the period, your contract is worthless and you get to keep the premium without having to sell your dividend shares. Investors can repeat and rinse over and over again by collecting these premiums.
TOP Dividend ETFs for Investments
1. TIPS Bond Ishares ETF Dividend Overview
The goal of the iShares TIPS Bond ETF is to follow the performance of the Treasury Inflation-Protected Securities. Investors will often buy TIPS during periods of rising inflation.
Ishares ETF Asset: TIPS ETF has over 28 billion in net assets of funds.
Ishares ETF Expense Ratio: Management fees associated with this fund are only 0.19%
Ishares ETF Dividend Yield: TIPS ETF yields over 7% annually.
Ishares ETF Dividend Liquidity: TIPS ETF has over 3 million of average monthly volume.
Ishares ETF Classification: TIPS ETF is for fixed-income investors.
Ishares ETF Performance: TIPS ETF is slightly down this year. Investors are using this ETF to hedge against inflation and yield. Investors are more targeted toward capital preservation and income than investment growth.
2. Schwab U.S. TIPS ETF Dividend Overview
The goal of the Schwab U.S. TIPS ETF is to target the performance of the Treasury Inflation-Protected Securities. Investors will often buy TIPS during periods of rising inflation.
Schwab U.S. TIPS ETF Asset: TIPS ETF has over 15 billion in net assets of funds.
Schwab U.S. TIPS ETF Expense Ratio: Management fees associated with this fund are only 0.04%
Schwab U.S. TIPS ETF Dividend Yield: TIPS ETF yield over 6.5% annually.
Schwab U.S. TIPS ETF Dividend Liquidity: TIPS ETF has close to 3 million of average monthly volume.
Schwab U.S. TIPS ETF Classification: TIPS ETF is for fixed-income investors and has 48 holdings.
Schwab U.S. TIPS ETF Performance: TIPS ETF is slightly down this year. Investors can use this ETF for yield and potential for tax efficiency. The TIPS ETF is passively managed.
3. JPMorgan Equity Premium Income ETF Dividend Overview
The goal of the JPMorgan Equity Premium Income ETF is to provide attractive yields and defensive equity exposure to investors.
Managers of the JEPI ETF use derivative strategies by selling out-of-money call options on the Standards & Poor’s index (SPX) to generate additional income. The purpose of the JPMorgan Equity Premium Income ETF purpose is to target the return of the S&P 500 with less volatility.
JPMorgan Equity Premium Income ETF Asset: JEPI ETF has over 15 billion in net assets of funds.
JPMorgan Equity Premium Income ETFExpense Ratio: Management fees associated with this fund are only 0.35%
JPMorgan Equity Premium Income ETF Dividend Yield: JEPI ETF yields over 9% annually.
JPMorgan Equity Premium Income ETF Dividend Liquidity: JEPI ETF has close to 3 million of average monthly volume.
JPMorgan Equity Premium Income ETF: JEPI ETF is for defensive equity investors.
JPMorgan Equity Premium Income ETF Performance: JEPI ETF is slightly down this year. Investors in this fund are not worrying about the return of technology stocks. Investors are more targeted toward capital preservation and income than investment growth.
4. iShares MSCI Brazil ETF (EWZ) Dividend Overview
iShares Brazil ETF targets the Brazilian stock market. EWZ ETF holds large to mid-size companies operating in Brazil. EWZ ETF targets the performance of the Brazilian equities index as a benchmark.
EWZ ETF Asset: iShares Brazil ETF has over 5 billion in net assets of funds.
EWZ ETF Expense Ratio: Management fees associated with this fund are only 0.19%
EWZ ETF Dividend Yield: TIPS ETF yield over 12% annually.
EWZ ETF Liquidity: TIPS ETF has over 23 million of average monthly volume.
Ishares ETF Classification: EWZ ETF is for equity investors in quest of yield. The fund holds 48 securities across several sectors of the Brazilian economy.
Ishares ETF Performance: EWZ ETF has performed far better than the US stock market with a return of over 12% as of September 2022.
5. Alerian MLP ETF Dividend Overview
The Alerian MLP ETF invests primarily in energy infrastructure and targets investment results from that index.
Alerian MLP ETF Asset: AMLP ETF has over 6 billion in net assets of funds.
Alerian MLP ETF Expense Ratio: Management fees associated with this fund are high compared to other passive ETFs. Investors are charged 0.87% in fees for investment in this fund.
Alerian MLP ETF Dividend Yield: AMLP ETF yields over 7% annually.
Alerian MLP ETF Dividend Liquidity: AMLP ETF has over 2 million of average monthly volume.
Alerian MLP ETF Classification: AMLP ETF is for equity investors in quest of dividends.
Alerian MLP ETF Performance: AMLP ETF along with energy stocks have significantly outperformed the equities market so far this year. AMLP ETF has returned over 27% this year as of September 2022.
Ishares ETF Dividend Yield: TIPS ETF yields over 7% annually.
Ishares ETF Dividend Liquidity: TIPS ETF has over 3 million of average monthly volume.
Ishares ETF Classification: TIPS ETF is for fixed-income investors.
Ishares ETF Performance: TIPS ETF is slightly down this year. Investors are using this ETF to hedge against inflation and yield. Investors are more targeted toward capital preservation and income than investment growth.
How to invest in ETFs paying dividends
Automate Dividend ETFs portfolio: Average investors do not have a large sum for investing. Therefore, the best approach if you are a small investor is to automate your dividend investing portfolio using the Dollar Cost Averaging methodology. Automating your dividend portfolio allows you to focus on other important things in your life such as your family, job, side hustle, or business.
Build a long-term portfolio: Investors must avoid paying attention to the day-to-day stock market noises which can push toward a quick liquidation of their dividend portfolio. You need to accumulate enough shares before getting decent dividends. Patience is key whether you are investing for growth long-term or capital preservation. Adding some dividend ETFs to your portfolio can help you to stay diversified.
Do chase dividend yield alone: Investors must avoid investing just for the yield. They need to invest in companies that can grow dividends while providing stock price stability.
Dividend ETFs Investment Risk
Risk and Rewards: Without risk, there is no reward. I hate losing money and you also hate losing money. Therefore, investors must understand the risks associated with their portfolio when investing in dividend ETFs. Conditions that can impact your investments are inflation, rising rates, currency, political risks such as the war in Ukraine, government policies, and deterioration of companies’ earnings.
The volatility of the Dividend ETF: Investors must understand how volatile the Dividend ETFs are compared to their benchmark index.
An ETF with a beta value equal to 2 is twice volatile as its benchmark index.
| ETFs | Risk (Beta) | Fees | Yield | YTD Performance | Volume | Net Asset (Billion) |
| TIP | 0.97 | 0.19% | 6.38% | -8.23% | 4,083,886 | 6.53 |
| SCHP | 0.96 | 0.04% | 6.53% | -8.15% | 2,937,426 | 16.34 |
| JEPI | 0.56 | 0.35% | 9% | -5.93% | 2,755,677 | 11.55 |
| EWZ | 1.80 | 0.57% | 12.56% | 13.90% | 24,496,886 | 5.14 |
| AMLP | 1.88 | 0.87% | 7% | 27% | 2,521,542 | 6.53 |
Dividend ETFs Taxation
Qualified Dividend: Qualified dividends are taxed as capital gains. This would apply to investors who held the ETF for more than 60 days before the ex-dividend date and 60 days after that date as well. One exception to this rule is Real Estate Investment Trusts (REITs). Investors in REIT ETFs will pay ordinary income on dividends received because REITs do not pay income tax and pay generally high yields to investors.
Non-Qualified Dividend: Non-qualified dividends are taxed as ordinary income. This would apply to investors who held the ETF less than 60 days before the ex-dividend date.
Key Takeaways from investing in Dividend ETFs
1. Dividend ETFs investments are often considered stable investments. Investors can face a decline in capital invested while collecting dividends.
2. Investors with moderate risk tolerance can invest in a volatile Dividend ETF if investors are not just looking for income but also for capital appreciation.
3. Investors using leveraged ETFs in their portfolio must learn to take a profit at least once a year.
4. Stay diversified. Don’t put all your eggs in one basket. Dividend ETFs can provide a very useful portfolio management tool for diversification.
5. Some dividend ETFs such as the JPMorgan Equity Premium Income ETF uses financial derivatives which can help to reduce portfolio volatility.
6. Dollar Cost averages your investment monthly. Using a lump sum investment can be detrimental to your portfolio during downtrends.
7. Most dividend ETFs charge low fees if they are passively managed.
8. Invest long-term. The Fed will eventually stop raising rates when inflation is under control. Hopefully, we are not in a recession.
