The market is encountering its first significant bout of volatility since the March bottom. There’s increasing uncertainty with data showing the economy’s momentum is stalling and uncertainty with the upcoming election.
Given these conditions, dividend-paying stocks are one interesting option, because…
they would outperform in a bear market. Additionally, they are attractive on a valuation level as the spreads between yields and treasuries are close to a historical extreme.
However, the pandemic has caused many dividend-paying companies to cut their dividends. In the second quarter of 2020, the number of stocks cutting dividends increased by 931% year-over-year to 639. While many stocks will maintain their dividend payments, if your goal is to ensure a dividend income, you may explore some ETFs that offer high dividend yields.
ETFs are composed of a basket of stocks so there’s much less risk. The iShares Broad USD High Yield Corporate Bond ETF (USHY – Get Rating), Invesco Financial Preferred ETF (PGF – Get Rating), iShares iBoxx $ High Yield Corporate Bond ETF (HYG – Get Rating), and Invesco Preferred ETF (PGX – Get Rating) are four ETFs paying above-average yields.
iShares Broad USD High Yield Corporate Bond ETF (USHY)
USHY’s goal is to track the investment results of ICE BofA US High Yield Constrained Index which is composed of U.S. dollar-denominated high yield corporate bonds. There may be a risk exposure attached to the corporate bonds in regions outside the U.S such as Japan, U.K., Canada, Australia, New Zealand, Switzerland, Norway, Sweden, and the eurozone.
The fund is non-diversified and invests at least 90% of its assets in component securities of the index and up to 10% of its assets in futures, options and swap contracts, cash and cash equivalents, and securities outside the index. USHY can substantiate portfolios of investors focused on fixed incomes and solid performance.
Some of its top holdings are BLK CSH FND TREASURY SL AGENCY, ALTICE FRANCE SA (FRANCE) 144A, SPRINT CORP, and TRANSDIGM INC 144A. USHY pays an annual dividend of $2.24 which yields 5.65%. The ETF has gained more than 20% since its March low.
The fund has returned 8.6% over the past six months and 4.8% over the past three months. The expenses ratio for USHY of 0.15% is lower than its category average of 0.49%, which makes it a reasonable option to invest in. Moreover, the fund has $5.71 billion in Assets Under Management (AUM).
How does USHY stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Industry Rank
A for Overall POWR Rating
You can’t ask for better. The ETF is also ranked #4 out of 53 ETFs in the High Yield Bond ETFs group.
Invesco Financial Preferred ETF (PGF)
This ETF has an investment approach that corresponds to the Wells Fargo Hybrid and Preferred Securities Financial Index. It has preferred securities with either fixed or floating rate dividends issued by financial institutions that have a “financial” industrial sector classification from the Bloomberg Professional Service. The fund does not have a lot of diversification. PGF’s complete emphasis on financials gives investors a unique avenue to divert their investments.
PGF pays an annual dividend of $0.94 which yields 5.02% and the fund has gained about 15% since its March low. The fund has returned 10.7% over the past six months and 5.6% over the past three months. Some of PGF’s top holdings are Wells Fargo & Co (WFC), JPMorgan Chase & Co (JPM), PNC Financial Services Group Inc. (PNC), and Bank of America Corp (BAC).
The total number of holdings in the fund is…
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