Futu Research | ETF Investment Research
【High Yield ETF】5 US Equity High Yield ETFs to choose from
Since the start of the year, as the rate hike cycle draws to a close, the market is expecting a drop in the US dollar rate more strongly. As a result, the US market has been on a wave of high dividends in recent months, with more and more people choosing to invest in some high-yield products to resist the risk of falling stock prices.
While there are some high-dividend companies in every segment of the market that are happy to return to shareholders, there is a more stable and secure way to invest in stocks — high yield ETFs for investors who are less likely to choose stocks. High-Dividend ETFs (also known as Dividend ETFs) determine the ETF's constituent stock options and the weightings of the holdings, primarily using the “Cash Dividend Distribution Status”. Especially in the context of the recent political economy, where stock movements are difficult to determine, high-dividend ETF investments can regularly yield substantial returns, and the stock assets tracked by different products can disperse risk, which is no longer suitable for conservative investors seeking stability.
How to Choose a High Dividend ETF
In general, to choose the best ETF for you from a wide range of products, you can start from the three aspects of Indices, Remuneration Performance, and ETF Mechanism.
1. Indices: Know what assets you are buying
High-Dividend ETFs typically track specific dividend indices, such as the Hang Seng High Dividend Index, S&P High Dividend Aristocrats, etc. These indices are generally composed of company stocks that pay stable dividends in the market and have relatively high returns, but there are differences in the composition of specific holdings. As wise investors, we should have a basic understanding of the logic of ETF holdings and choosing stocks to avoid “a rat's ?$#@$ spoils a pot of soup”.
2. Remuneration Performance: Understand How Yield and Dividend Rates
Everyone's buying a high-dividend ETF is to expect a stable and higher yield. Therefore, when choosing a product, it is necessary to compare the current yield and dividend rates of different high-dividend ETFs, and combine the growth trend of dividends, to select products with strong dividend paying capacity and expect continued growth.
3.ETF Mechanism: Reduce the Amplitude of “Broker Earning Spreads”
Institutions offer a range of equity product ETFs that are available for everyone to buy directly, requiring management fees as remuneration. As investors, we should also compare rates for different products. ETF management fees and operating costs directly affect net returns, and lower rates help to increase net returns for investors. In addition, for this particular type of high-dividend ETF, investors should also be mindful of its dividend frequency — if the ETF allows dividends to be reinvested, then more frequent dividends can allow investors to accumulate more quickly through the compound interest, but fewer times if the investor does not need instant cash flow, but less times but the total, etc. Large dividends may be more advantageous by reducing transaction costs and tax charges.
High Dividend ETF Recommendations
Below, we will recommend several high-dividend ETFs on the US stock market, which you can choose according to your investment preferences:
$JPMorgan Equity Premium Income ETF(JEPI.US)$
This is a Covered Call ETF issued by JPMorgan Chase, which tracks companies in the S&P 500 while providing investors with additional income by selling Long Call options fees, designed to provide distributable income and stock market exposure on a monthly basis with less volatility. According to data from JPMorgan Chase, this ETF:
Offers a highly attractive 12-month rolling dividend yield of 8.50% and a 30-day total return of 7.04%;
yield in the top third of products in the same category;
Compared to peers, the price is more competitive with a management rate of only 0.35%.
Currently, Hong Kong users are required to pay 30% dividend tax when purchasing this ETF, and 10% dividend tax for Mainland Chinese personal users, usually deducted directly from dividends. The following four ETFs are the same in terms of taxation.
$Global X Russell 2000 Covered Call ETF(RYLD.US)$
This ETF tracks the Russell 2000 Index, which represents the performance of 2,000 companies with smaller market capitalizations and is often considered a benchmark for the small stock market. By selling bullish options for 50% of the portfolio, the product enables investors to capture the upside potential of half of the asset's index. As of now, the ETF has an asset size of approximately $14 billion, a management fee of 0.35%, a dividend yield of 12.56%, and an average one-year Fund NAV growth of 12.74%.
$Invesco KBW High Dividend Yield Financial ETF(KBWD.US)$
Founded in December 2010, the ETF tracks the KBW Nasdaq Financial Dividend Index, which primarily invests in U.S. real estate investment trusts and the financial industry, holding only 41 shares. Major shareholders include Dynex Capital, Ellington Financial Inc, Western Union, etc.
This ETF has a high yield of more than 10%.
To date, the ETF has an asset size of approximately $3.59 billion, a management fee of 0.35%, a dividend yield of about 12.3%, an SEC 30-day yield of 11.9%, with monthly dividends.
$Global X Nasdaq 100 Covered Call ETF(QYLD.US)$
The ETF is based on investments in US technology growth stocks such as AI, semiconductors, and technology giants such as Semiconductor, Microsoft, Apple and Fiida as its constituent stocks. It generates additional income through CoveredCall, that is, buying stocks in the Nasdaq 100 index and selling the corresponding Long Call of the same index to earn option fees, then distributing dividends to holders. This way generates a higher rate of return in volatile times.
As of now, the ETF has an asset size of approximately $81 billion, a management fee of 0.61%, a dividend yield of 11.70%, a 12-month yield of 12.32%, with monthly dividends.
$iShares International Select Dividend ETF(IDV.US)$
If you are interested in overseas markets other than the United States, you can choose this ETF for high-yield investments. It focuses on large markets outside the United States, including the UK, Australia, South Korea, Japan, Spain, such as London mining giant Lito Group (RIO) and Japanese shipping giant Japan Postage (NPNYY), which also has a high dividend yield of about 7%.
As of now, the ETF has an asset size of approximately $41 billion, a management fee of 0.51%, a dividend yield of 6.79%, and a 5-year interest yield of 10.75%, with quarterly dividends.
It is worth mentioning that ETFs are taxed also depends on the assets they hold, and since US Treasuries are tax-free at the state and local level, so if an ETF that holds US Treasury bonds, such as TLT, their dividend payments are also exempt from state and local income taxes.
Since fractionation is the key to this type of ETF, major companies need to understand the prepayment and refund rules when buying on the platform before buying, so the tool can be referred to in the Futu article:ETF Tax Refund Guide: Know Your Investment Returns
summed
With the dual objective of pursuing stable returns and potential capital gains, the US Equity High Dividend ETF provides investors with an ideal tool to effectively spread risk and obtain passive income, making it a good choice for investors who are willing to moderately sacrifice some upside potential in pursuit of income while moderately sacrificing some upside potential.
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