The major United States stock indexes are holding onto minimal gains as the calendar quickly approaches the mid-year mark. With investors getting a bit frustrated with the minimal returns in the stock market, especially considering the risk involved, where do investors turn to grow their investments? There are four ideas that include out of the ordinary investment choices as well as equity-based exchange-traded funds (ETFs) that are being discussed below.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Alternative High-Income ETFs
The iShares S&P U.S. Preferred Stock ETF (ARCA:PFF) is composed of a basket of 251 preferred stocks that are listed on U.S. exchanges. The ETF has an expense ratio of 0.48% and is highly concentrated in the diversified financial sector and banks. The two sectors make up 73% of the entire allocation of the ETF. More importantly is the 30-day SEC yield on the ETF of 6.23%. Year to date the ETF is up 7.8%, beating the markets averages, not including the above-average dividend payout. The beauty of the preferred stock is that it has the ability to move higher with stocks and is also a linked to the performance of bonds.

SEE: Key Strategies To Avoid Negative Bond Returns

The PowerShares CEF Income Composite ETF (ARCA:PCEF) is a fund of funds as it is composed of a basket of closed-end funds (CEF). The whopping 8.1% 30-day SEC yield has attracted investors looking for high-income flows. Year to date the ETF is up 2.6%, not including the dividend payouts. Over 60% of the CEF that make up the ETF are bond related with another 26% considered option income CEFs. This ETF is unique in that it is a fund of funds, and due to that strategy the diversification is high even though it concentrates on a niche sector within the market.

SEE: Building An All-ETF Portfolio

Equity High-Income ETFs
There are also ETFs that invest in stocks that offer investors regular dividend payments well above the yield on Treasuries. The iShares High Dividend Equity ETF (ARCA:HDV) has a 30-day SEC yield of 3.8%, more than double the yield on the 10-year Treasury. The ETF is composed of 75 stocks mainly in the healthcare, consumer goods, telecom and utilities sectors. The top holdings include AT&T (NYSE:T), Pfizer (NYSE:PFE) and Verizon Communications (NYSE:VZ). Year to date the ETF is up 5.6% without dividends included. The beauty of HDV is that it has beaten the S&P 500 with a higher dividend and less volatility.

The EG Shares Low Volatility Emerging Markets Dividend ETF (ARCA:HILO) is designed to provide high income and less volatility than the MSCI Emerging Markets Index. The ETF is composed of 30 stocks and the index is currently yielding 6.44%. Thailand, China, Brazil and South Africa are the most heavily weighted countries in the ETF. Year to date the ETF is up 0.5%, and is basically in-line with the return of the iShares MSCI Emerging Markets ETF (ARCA:EEM). The ETF charges an annual expense ratio of 0.85%.

SEE: 4 Misconceptions That Sink Emerging Market Investors

The Bottom Line
When looking for high-income ETFs or stocks, it is integral to expand the search beyond solely the dividend yield. It is irrelevant how high a dividend yield is considering the ETF or stock could fall by much more than the percentage of the dividend. You must ask yourself if you would buy the ETF or stock even if the dividend yield was average. If the answer is no, then the investment should not be bought.

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.
Related Articles
  1. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  2. Investing Basics

    Top Tips for Diversifying with Exotic Currencies

    Is there an opportunity in exotic currencies right now, or are you safer sticking to the major ones?
  3. Mutual Funds & ETFs

    The 3 Biggest Mutual Fund Companies in the US

    Compare and contrast the rise of America's big three institutional asset managers: BlackRock Funds, The Vanguard Group and State Street Global Advisors.
  4. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  5. Professionals

    5 Top-Rated Funds for Your Retirement Portfolio

    Mutual funds are a good choice for emotional investors. Here are five popular funds to consider.
  6. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  7. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  8. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  9. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  10. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!