With the S&P 500 continually hitting new record highs and Treasury yields actually heading down instead of up despite rising inflation rates, dividend investors remain in the precarious position of figuring out how to improve the yield on their portfolios.
To get a higher yield, you'll need to venture into the world of high yield equities or junk bonds. To get a significantly higher yield, you'll need to target some less than conventional ideas, sector plays or derivatives-based strategies.
That doesn't necessarily mean these have to be high risk ETFs, although in some cases they will be. Some focus on higher income at the expense of capital appreciation potential. If your focus, however, is on producing portfolio income and you're less concerned with taking home run swings, these half dozen ETF choices are well worth considering.
StrategyShares Nasdaq 7HANDL Index ETF (HNDL)
HNDL is unique in that it combines a very diversified portfolio of equities, fixed income and alternative strategies with 23% structural leverage to create a 7% fixed distribution yield paid on a monthly basis.
Its structure and objective aren't all that different from what you might see in a lot of closed-end funds - a primary goal of high current income with the modest use of leverage. The big difference, of course, is that you wouldn't have to, in theory, deal with the discounts and premiums to NAV that would come with a CEF.
I really like how this fund hits almost every major asset class to some degree, while the fixed distribution policy provides a steady and predictable income stream for shareholders.
Nationwide Risk Managed Income ETF (NUSI)
At its core, NUSI is a Nasdaq 100 linked ETF. Outside of that core position, it writes covered calls in order to generate a high yield while purchasing a protective put option to limit downside risk.
NUSI currently throws off an 8% yield with distributions paid out monthly. The addition of covered calls and protective puts will limit the range of outcomes for NUSI by capping upside and limiting downside. For income seekers, that might be a preferable outcome for shareholders since it generates a high yield while at the same time reduces overall portfolio risk.
JPMorgan Equity Premium Income ETF (JEPI)
JEPI looks a lot like a traditional covered call ETF, but is structured a bit differently. Instead of targeting the S&P 500 or Nasdaq 100, JEPI constructs a portfolio of low volatility mid-cap and large-cap stocks that meet specific ESG criteria. On top of that, it can invest up to 20% of the fund's assets in exchange-linked notes.
The best way to describe an ELN is that it's a covered call position - a long position in a security along with a written call option on that security - all rolled into a single asset. The combination of low volatility stocks with these ELNs makes it look and feel like a covered call ETF.
JEPI also currently has an 8% and pays its income on a monthly basis.
VanEck Vectors Mortgage REIT Income ETF (MORT)
Sometimes you need to invest in a very specific sector in order to achieve a high yield. You could target something like BDCs or MLPs for high yields, but my preference is mortgage REITs. As we finally begin emerging from the COVID pandemic, the mortgage and real estate markets have stabilized and are turning back up again. There will always be above average risk in this highly rate and economically sensitive sector, but the income rewards can be significant.
MORT can invest in small-, medium- or large-cap companies whose primary focus is the purchase and/or servicing of commercial and residential mortgages or mortgage-related securities. MORT currently offers investors a 7% yield and pays out on a quarterly basis.
Global X Nasdaq 100 Covered Call ETF (QYLD)
QYLD is more your traditional covered call ETF. As the name suggests, it starts with full replication of the Nasdaq 100 and writes call options on top of the index in an equal notional amount.
QYLD, obviously, won't be nearly as volatile as the Nasdaq 100 itself since the written calls will limit the fund's upside, but the distribution yield is one of the most attractive you'll find. Based on the most recent distribution, it has a yield of 12% and, like many Global X ETFs, pays out on a monthly basis.
QYLD is a nice option for generating a double digit yield while still maintaining at least a little of the upside potential of the Nasdaq 100.
Saba Closed-End Funds ETF (CEFS)
I'm cheating a little bit on this one because, while it is an ETF, it invests entirely in closed-end funds. CEFS currently has positions in 35 different CEFs with a breakdown of roughly 3/4 fixed income and 1/4 equity. CEFs can trade at discounts or premiums to NAV and this portfolio as a whole trades at about an 8% discount to NAV, so there is a little bit of extra added value there.
CEFs has a current yield of 8% and pays its distributions on a monthly basis. While diversification is certainly an advantage of CEFS, its fund-of-funds approach also layers fees-on-fees. A 1% management fee on top of the acquired fund fees pushes the total expense ratio on this fund to more than 4%.