Harry Domash, Online Investing | Exchange-traded funds paying monthly dividends

This article was originally published on this site

Looking for monthly income? Here are three exchange-traded-funds that paid monthly dividends equating to 7.4% to 9.8% yields for the past 12 months. Compare those numbers to what your money market account is paying.

Before I describe the exchange-traded-funds, here are two important items that you need to know.

ETF dividend yields

Unlike most dividend-paying mutual funds and common stocks, exchange-traded funds usually don’t pay fixed monthly dividends. Instead, their payouts vary from month to month. So, you calculate exchange-traded-fund dividend yields by comparing an exchange-traded fund’s last 12-month’s total dividend payouts to its recent share price. For example, the yield would be 10% for a fund that paid dividends totaling $1 per share for the past year and recently traded at $10 per share.

Calculating returns

As is the case for all dividend-paying securities, returns include dividends received plus share price appreciation over the covered period.

The funds

Global X NASDAQ 100 Covered Call (ticker QYLD): Tracks the NASDAQ 100 Buy/Write Index that measures the share price performance of stocks included in the NASDAQ 100 Index, but also employs a covered call options strategy to generate additional income. That strategy allows the fund to pay a 9.8% dividend yield, even though most stocks in the index don’t pay high dividends. The fund returned 23% in 2019 and its returns averaged 12% annually for the past three years.

Invesco CEF Income Composite (PCEF): Closed-end funds (are similar to exchange-traded funds, however, unlike exchange-traded funds, closed-end funds often employ leverage (debt) to increase returns. That is, a closed-end fund might borrow at 2% interest and then invest the borrowed funds at 4% to increase returns. While such borrowing might add risk in a high-interest rate environment, it wouldn’t be a factor under current conditions. Invesco CEF Income tracks an index of closed-end funds that invest in corporate bonds. It’s paying a 7.1% yield, returned 24% last year, and averaged 8% annually for three years.

Global X SuperDividend REIT (SRET): Real estate investment trusts fall into two main categories; 1) Property real estate investment trusts that invest in properties such as office buildings or warehouses to generate income, and 2) finance real estate investment trusts that invest in mortgages and other types of securities secured by real estate properties. This fund tracks an index of 30 mostly U.S.-based real estate investment trusts. Its selection criteria is proprietary, but its portfolio is currently overweighting finance real estate investment trusts. The fund is paying a 7.8% yield, returned 23% in 2019 and averaged 10% annual returns for three years.

Those are my ideas based on current market conditions. As you’ve heard, past performance doesn’t predict the future.

Further, last year was an especially strong year for income paying securities. So, 2019 returns are unlikely to be repeated this year. Also, do your due diligence. The more you know about your investments, the better your results.

Harry Domash of Aptos publishes the Winning Investing and the Dividend Detective websites. Contact him at www.winninginvesting.com or Santa Cruz Sentinel, 324 Encinal St., Santa Cruz, CA 95060. To see previous Domash columns, visit santacruzsentinel.com/topic/Harry_Domash.