Once upon a time, the conventional wisdom was that investors should hold stocks as a source of long-term capital appreciation while bonds could bring stability and a stream of meaningful current returns in the form of interest payments. But the appeal of bonds as a source of current income has been diminished by a prolonged period of record low interest rates, pushing yields down and forcing investors to look elsewhere for distributions. In many cases company stock now has distributions that exceed the yield on debt issued by the same entity, a unique phenomenon to say the least . The same scenario plays out for many ETFs; with interest rates at record lows, the current return that can be derived from corporate debt has plummeted. Yet dividend payouts have remained largely untouched, as corporate profits have maintained strength and companies have sought to make a show of stability through a consistent distribution to shareholders .

The iShares Investment Grade Corporate Bond Fund (LQD) recently had a 30-day SEC yield of about 3.2%, which is considerably higher than the yield available on Treasuries but below what is available through some ETFs that focus on dividend-paying stocks. Below, we profile a handful of dividend ETFs that offer meaningful yields:

  • Dow Jones Select Dividend Index (DVY): This ETF offers exposure to a diversified basket of U.S. stocks by seeking to replicate an index that screens potential constituents by dividend-per-share growth rate, dividend payout percentage, and dividend yield. The result is a portfolio that includes many high yielding securities, with Lorillard (LO), Lockheed Martin (LMT), and Chevron (CVX) making up the largest weightings.
  • High Dividend Equity Fund (HDV): This ETF seeks to replicate the Morningstar Dividend Yield Focus Index, a benchmark that is designed to include about 75 U.S. stocks that have provided relatively high dividend yields on a consistent basis. Currently, top components include AT&T (T), Pfizer (PFE), and Johnson & Johnson (JNJ).
  • WisdomTree Equity Income Fund (DHS):This ETF is linked to a fundamentally-weighted index that measures the performance of high dividend yield stocks. Specifically, components are weighted toreflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year, based on the most recently declared dividend per share. Big weightings in DHS include T, General Electric (GE), and PFE.
  • Global X SuperDividend ETF (SDIV):This ETF holds a basket of 100 equal weighted stocks from around the globe, focusing on the highest yielding securities available. While this strategy can pick up some risky beaten-down stocks, it also has the potential to deliver some huge dividend yields. At the end of June, SDIV had a 30-day SEC yield of about 8%.
Ticker ETF Yield*
LQD iShares Corporate Bond Fund 3.19%
DVY iShares Dow Jones Select Dividend Index Fund 3.60%
HDV High Dividend Equity Fund 3.61%
DHS Equity Income Fund 3.84%
SDIV SuperDividend ETF 8.02%
*As of 7/23/2012

Disclosure: No positions at time of writing.

Related Articles
  1. Bonds & Fixed Income

    The Top 5 High Yield Bond Funds for 2016

    Learn about mutual funds and ETFs that invest in high-yield bonds. Read about the risks and rewards associated with investing in high-yield bonds.
  2. Chart Advisor

    Rare Earth Metals Continue To Struggle

    Rare earth metals are used in many of today's products and many investors are wondering if consumer demand is enough to offset the global economic slowdown. We'll take a look at how they are ...
  3. Mutual Funds & ETFs

    3 ETFs to Consider Before an Interest Rate Hike

    Learn about potential impacts of the Federal Reserve boosting interest rates and three ETFs that can help you capitalize on the perceived December increase.
  4. Mutual Funds & ETFs

    A Complete Guide to Tax Loss Harvesting With ETFs

    Using exchange-traded funds (ETFs) to harvest tax losses can be a smart way to maximize your portfolio's tax efficiency.
  5. Mutual Funds & ETFs

    Why ETFs Are a Smart Investment Choice for Millennials

    Exchange-traded funds offer an investment alternative to cost-conscious millennials who want to diversify their portfolios with less risk.
  6. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  7. Mutual Funds & ETFs

    Should Investors Take a BITE Out of This New ETF?

    ETF BITE offers a full menu of restaurants. Is now the right time to invest?
  8. Financial Advisors

    5 Things All Financial Advisors Should Know About ETFs

    Discover five things all financial advisors should know about ETFs, including when ETFs may be a better choice for your clients than mutual funds.
  9. Stock Analysis

    The Top 5 ETFs to Track the Nasdaq in 2016

    Check out five ETFs tracking the NASDAQ that investors should consider heading into 2016, including the famous PowerShares QQQ Trust.
  10. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center