Historically low interest rates have created challenges in recent years for investors seeking yield. For those who want to generate income, several leading MoneyShow.com contributors highlight nine exchange-traded and closed-end funds that offer high yields in a diverse group of sectors.

 

Bryan Perry, Cash Machine

I feel now is the time to tread back into the healthcare sector with an income play that is focused on some of the best-of-breed stocks. These holdings should continue to outperform their peers from the standpoint of generating both current income and providing capital appreciation. Tekla Healthcare Opportunities Fund (THQ), with over $1 billion in assets, aims to achieve both objectives.

I believe the fund, and its 8.0% current dividend yield, is a fine fit for our conservative high-yield model portfolio. The shares trade at a very attractive 8.03% discount to the fund’s net asset value. The fund’s manager employs a managed distribution policy where payouts are comprised of stock dividends, short-term and long-term capital gains.

The fund pays out monthly, which is tailored for our purposes. The current monthly payout is $0.1167, or $1.40 per share per year. The fund is spreading its capital within the broader healthcare sector to help provide stability and steady performance. There are currently 82 holdings in the portfolio. The shares have returned 20.37% year to date for 2017. The stock hit a 52-week high of $19.00 and has pulled back, giving us an attractive entry point.

 

David Fabian, Flexible Growth & Income Report

We continue to favor PIMCO’s view of defensively managing interest rate exposure through hedging key risks. Effective duration is a measure of a fund’s sensitivity to changes in interest rates, so a negative effective duration is indicative of a portfolio designed to capitalize on rising rates.

They have been able to achieve this goal, all while maintaining strong portfolio income and decent dividend coverage. We are currently recommending an allocation to the PIMCO Dynamic Credit and Mortgage Income Fund (PCI).

The fund has posted excellent returns since inception and now sits at a discount more than double its 52-week average. Indeed, it is one of the only PIMCO funds trading at a discount relative to its net asset value, which is an attractive characteristic for our fundamental outlook.

As such, we believe that now presents a good time to begin building a starter position that we can add to over time. While we could be at the precipice of macro changes to the fixed-income investing landscape, we continue to believe PIMCO Dynamic Credit will perform well over the intermediate to long-term.

 

Jim Woods, Weekly ETF Report

Low-cost, high-dividend exchange-traded funds such as the SPDR S&P Dividend ETF (SDY) can help investors find extra income from dividend payments without the risk of having to choose among individual dividend-paying stocks.

While individual companies often can pay much more tempting yields than an ETF, with some offering dividend yields of between 5-10%, no company and no stock is immune to market volatility.

It is a lot riskier to “put all your eggs in one basket” than to spread out risk through a dividend-paying ETF, which can hold several hundred companies in its portfolio that pay dividends. Simply put, investors who receive dividend payments from multiple companies via an ETF will be only marginally affected when one or even several companies stumble, decrease in share price and potentially fail to deliver on dividend obligations. This fact can make dividend ETFs very attractive to risk-averse investors.

Of course, the major concern facing any dividend-paying stock or ETF is a company cutting or omitting its dividend payment, a real threat in uncertain economic and financial times.

SPDR S&P Dividend’s partial solution to the threat of dividend cuts is to screen for stocks that have at least two decades of consecutive dividend increases, as this implies that the companies paying the dividend can back up the payment with capital growth. Remember that S&P 500 stocks that pay dividends for 25 years or more are considered “Dividend Aristocrats.”

While the fund will not be dropping the jaws of market analysts anytime soon, its performance over the last few years has been quite respectable — roughly doubling in share price in five years. Also, there have been no significant and troubling dips during that time.

The fund pays a 2.48% yield and has an expense ratio of 0.35%. With $15.4 billion in net assets, the portfolio is made up of just over 100 dividend-paying companies with some allocation to all sectors of the market. No position in this ETF comprises more than 3% of total assets. Investors looking for a basket of companies with two decades of reliable dividend payments may want to consider the SPDR S&P Dividend ETF.

 

Richard Moroney, Dow Theory Forecasts

For bond investors seeking an all-weather holding, we recommend Vanguard Total Bond Market (BND). The fund invests in nearly 8,250 securities, including government, corporate, foreign, and mortgage-backed bonds.

The exchange-traded fund, yielding 2.5%, has gained 3.3% this year, while the 10-year annualized return is 4%. The expense ratio is only 0.05%. With the Federal Reserve signaling the potential for rate hikes, investors need to know that bond prices tend to move in the opposite direction of rates.

Still, the fund offers dependable income and a way to preserve wealth — attractive qualities for conservative investors. Since its 2007 inception, the fund has had one down year, a modest 2.1% decline in 2013.

 

Jimmy Mengel, The Crow's Nest

I believe the single most effective and safe way to grow your wealth over time is to have a stable of solid dividend-paying stocks — ones that you can hold forever without worrying about the day-to-day market swings. There are also several ETFs that track dividend growers and dividend aristocrats. You can’t go wrong with investments like these. As they say, slow and steady wins the race.

Vanguard Dividend Appreciation ETF (VIG) tracks the NASDAQ US Dividend Achievers Select Index, which is comprised of companies that have increased their dividends on an annual basis for at least 10 straight years.

This includes some dividend aristocrats. But since they lower the bar to ten years of dividend increases instead of the 25-year requirement for aristocrats, it also includes “newer” dividend payers. The ETF has $30.75 billion in net assets, a yield of 2.06% with an expense ratio of 0.08%. That is the lowest expense ratio of any of the ETFs covered here.

PowerShares High Yield Equity Dividend Achievers ETF (PEY) seeks to track the investment results of the NASDAQ US Dividend Achievers 50 Index. The fund generally will invest at least 90% of its total assets in common stocks of companies that comprise the underlying index.

This includes common stocks in the underlying index that have a consistent record of dividend increases, principally on the basis of dividend yield and consistent growth in dividends. The index is comprised of 50 stocks selected principally on the basis of dividend yield and consistent growth in dividends.

PEY has raised its dividend by an average of 10.8% per year over the last three years. It’s the smallest of the bunch, holding $914.97 million in assets, it yields the most at 3.18% and has an expense ratio of 0.54%.

ProShares S&P 500 Dividend Aristocrats (NOBL) seeks investment results, before fees and expenses, that track the performance of the S&P 500 Dividend Aristocrats Index. 

The fund will invest at least 80% of its total assets in component securities (i.e., securities of the index and comparable securities that have economic characteristics that are substantially identical to the economic characteristics of the securities of the index).

The index contains a minimum of 40 stocks, which are equally weighted, and no single sector is allowed to comprise more than 30% of the index weight. This is my favorite choice, based on the straight up dividend aristocrat criteria.

The expense ratio is larger than VIG, but the security of the holdings makes it a worthwhile ETF to park your money in for decades to come. This is the most pure of the dividend aristocrat ETFs we’ve mentioned. It has $3.05 billion in assets, a 1.91% yield and an expense ratio of 0.35%

 

Ned Piplovic, DividendInvestor

Alpine Global Premier Properties Fund (AWP) currently is offering a 9.26% dividend yield and its share price has gained almost 20% over the past 12 months. This fund’s combination of strong share price growth, high-yielding dividend distributions and the relatively inexpensive share price of around $6.50 per share could be an affordable way for investors to get exposure to the international real estate market.

Alpine Global Premier Properties Fund is a diversified, closed-end management investment company. The fund’s $617 million in total assets were recently allocated across nine sectors, 10 countries and 102 individual holdings.

The fund invests in securities, equity-linked structured notes, equity-linked securities and various other derivative instruments, which could be illiquid. Alpine Global invests in issuers that are principally engaged in the real estate industry or real estate financing that controls real estate assets.

The combination of the steady dividend income and the substantial asset appreciation delivered a 26.64% total return over the past 12 months. The extended period performance was equally good with a 20.38% total return for the last three years and 30.73% for the previous five years.

 

Bret Owens, Contrarian Investor

You’ve probably not heard of the Pimco Corporate & Income Opportunity Fund (PTY) because it’s a closed-end fund (CEF), and despite their many virtues, CEFs are the black sheep of Wall Street’s fund world.

In short, a closed-end fund is like an exchange-traded fund in that it too trades on an exchange, but it has a limited number of units, and thus tends to trade very tightly around its net asset value, meaning at times funds can trade at discounts or premiums to their collective holdings.

They’re typically actively managed, which means high fees. That is an immediate turnoff in today’s index-ETF-crazed market — but because they can use leverage to juice dividends and returns, good CEF management can more than make up for their higher costs.

Pimco’s Corporate & Income Opportunity Fund is a bond fund that invests in a wide variety of debt, from mortgage-linked bonds to high-yield credit to even emerging-market and municipal bonds.

It features a nice maturity spread that’s mostly concentrated on the short-term — bonds of 1-3 years in maturity are the biggest piece of the pie, at 31% — and you even get international diversification, with about 20% of the fund split among the UK, Brazil, Russia and Luxembourg.

Additional leverage of more than 40% helps power a yield well north of 9%. That’s the fuel behind a five-year return that is roughly triple that of standard high-yield funds.

 

 

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