Over the last decade plus, the number of exchange-traded funds, or ETFs, has increased exponentially.
In 2003, there were 199 actively managed ETFs. According to Bloomberg, today there are over 5,000 ETFs trading globally.
Many investors are looking to exchange-traded funds these days as an alternative to owning individual stocks and mutual funds.
That’s because ETFs:
- Average lower maintenance fees than mutual funds.
- Can be bought and sold at any time of the trading day just like common stocks.
- Cover a wide array of investment areas including equities, bonds, currencies, commodities and real estate.
- Can provide less risk than owning individual stocks.
- Are typically more tax efficient than mutual funds in the sense that they have a lower capital gains tax.
And that’s not all… Many investors don’t realize ETFs can also provide some of the highest-paying dividends in the stock market.
High-Yielding Dividend ETFs
There’s no doubt the past few years have been very straining financially for retirees and income-seeking investors.
The Fed’s rock-bottom interest rates, coupled with the fact that most Treasury bond returns are near zero when taking inflation into account, make it really hard for investors to find solace for their wealth.
But that’s where dividend-paying ETFs can help. And you may be surprised at just how many of these funds are dishing out big payments.
Among the top yielding funds are:
| Rank | ETF Name | ETF Symbol | Yield |
| 1 | Invesco KBW High Dividend Yield Financial ETF | KBWD | 15.9% |
| 2 | Alerian MLP ETF | AMLP | 15.6% |
| 3 | Global X SuperDividend ETF | SDIV | 12.4% |
| 4 | Alerian Energy Infrastructure ETF | ENFR | 10.4% |
| 5 | ALPS REIT Dividend Dogs ETF | RDOG | 10.2% |
| 6 | Invesco International Dividend Achievers ETF | PID | 7.5% |
| 7 | WisdomTree Emerging Markets High Dividend Fund | DEM | 7.2% |
| 8 | First Trust Stoxx European Select Dividend ETF | FDD | 6.6% |
| 9 | ALPS Emerging Sector Dividend Dogs Fund | EDOG | 6.6% |
| 10 | iShares Asia/Pacific Dividend ETF | DVYA | 6.5% |
For individuals looking to growth their wealth and add income, many of these dividend-paying ETFs are getting harder and harder to pass up.
In fact, today, the global ETF industry has more than $5 trillion in assets under management according to a report from State Street Global Advisors. That is a 284% increase from the end of 2012, when CNBC reported $1.3 trillion under management.
As WisdomTree states ETFs are comprised of, “baskets of investments that represent a diversified group of companies (just like mutual funds).”
This means they’re usually less vulnerable to price swings in the market than individual stocks. What’s more, the recent push into ETFs has prompted many funds to drop their expense fees, which makes them even more appealing.
But before you jump into an ETF just because it has a high yield, there are risks to consider…
Potential Risks
The ETF industry has now become a $5-trillion business and it’s growing fast.
Yet as Forbes cautioned in 2011, “The top 143 ETFs represent more than 85% of the assets invested in ETFs. The bottom 700 ETFs make up just 2% of ETF assets. Because these ETFs haven’t attracted sufficient assets and aren’t widely traded, they often lack liquidity.”
In other words, despite the diversification ETFs provide, many – whether dividend paying or not – are subject to wild price swings simply because there aren’t enough people trading them.
Plus, as Legg Mason’s Peter Vanderlee told Barron’s, “If you only look at the dividend yield, you’re asking for trouble. Investors need to analyze the prospects for meaningful dividend growth,” as well.
The bottom line… You should shop around first to find an ETF that’s right for you.
ETFs Are Here to Stay
Julie Casserly, President of JMC Wealth Management, told CNBC in 2013, “In the ETF world you can be in any sector at any point. You can now invest more like institutions. Prior to this big explosion, retail investors couldn’t invest this way.”
This is a telltale sign that ETFs will only become more and more prevalent in the future.
And when weighing the pros and cons, ETFs should be seriously considered for any investor’s portfolio, especially those with high yields.
Good investing,
Kristin Orman
Director of Research
Liberty Through Wealth