5 ETFs paying fat dividends

Dave Durham

The ETF landscape is wide enough now that you don’t have to venture into individual equities to collect fat dividends from high yield stocks. Today, there are ETFs that do just that, and the following 5 are a few of the highest-yielding of the bunch.

If you’re an income investor, your primary concern is finding solid investment vehicles paying out impressive high dividend yields. Sure, there are a lot of individual stocks out there paying good dividends, but trying to determine which stocks are best is often a trying task.

Fortunately, the exchange-traded fund (ETF) landscape is wide enough now that you don’t have to venture into individual equities to get a diversified basket of fat dividend stocks. Today, there are many ETFs that do just that, and the following five are the highest-yielding of the bunch:

 

iShares S&P U.S. Preferred Stock Index (PFF)

Topping our list of high dividend yield ETFs is the iShares S&P U.S. Preferred Stock Index (PFF). This fund seeks to track the price and yield performance of the S&P U.S. Preferred Stock Index. Preferred shares held in this ETF include Sempra Energies (SREPA), General Motors (GM) and Bank of America (BA) among many other stellar dividend payers. As of March 31, the annual dividend yield on PFF was 5.91%.

 

PowerShares Preferred (PGX)

In second place is the PowerShares Preferred (PGX). This fund seeks investment results that correspond generally to the price and yield performance of an index called The BofA Merrill Lynch Core Fixed Rate Preferred Securities Index. Basically, with PGX you own preferred stock in some of the best financial companies around, including Citigroup (C), JP Morgan Chase & Co. (JPM) and Wells Fargo (WFC). As of March 31, the annual dividend yield on PFF was 5.61%.

 

 SPDR Wells Fargo Preferred Stock (PSK)

Coming in third on our list of top-yielding dividend ETFs is the SPDR Wells Fargo Preferred Stock (PSK). This fund seeks to replicate as closely as possible the total return of the Wells Fargo Hybrid and Preferred Securities Aggregate index. As of March 31, the annual dividend yield on PFF was nice 6.01%.

As you can see, all three of our top-yielding ETFs hold preferred shares. The key difference between preferred stock and common stock is that similar to bonds, the primary source of return in preferred stock is usually generated by a fixed dividend payment that must be paid out before dividends to common stockholders. The structure of preferred shares is one reason why the top three dividend-yield ETFs all feature preferred stock.

 

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Invesco S&P Global Dividend Opportunities Index ETF (LVL)

Our next ETF dividend winner proves that not all high yields require preferred stock. The Invesco S&P Global Dividend Opportunities Index ETF (LVL) seeks investment results that correspond generally to the performance of an equity index called the S&P Global Dividend Opportunities Index. The index consists of a variety of equities, including Exxon (XOM), Verizon Communications (VZ) and Colgate-Palmolive Co (CL) common stock. As of March 31, the annual dividend yield on LVL was 3.61%.

 

WisdomTree U.S. High Dividend Fund (DHS)

Rounding out our top-five list is the WisdomTree U.S. High Dividend Fund (DHS). Appropriately, this ETF seeks to track the price and yield performance of the WisdomTree Equity Income index. That index tracks many of the biggest large-cap stocks in the market today, including AT&T (T), Chevron (CVX), Pfizer (PFE) and Johnson & Johnson (JNJ). With DHS, you get the best of the best in dividend paying common stock. As of March 31, the annual dividend yield on DHS was 3.42%.

 

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