Stock Market

7 Monthly Dividend Funds and How to Find the Perfect ETF

Learn how to find the best monthly dividend funds for your portfolio that are well diversified and give consistent returns.

Gettin’ paid every month plus the stress-free strategy of an ETF…what could be better?. There are more than 800 monthly dividend ETFs with more than 600 of those underperforming the market…how can you possibly find one perfect for your portfolio?

In this video, I’ll show you a new ETF screener for monthly dividend funds that will narrow your list to the very best. Then I’ll reveal the top seven monthly dividend ETFs with a mix of returns, dividends and diversification!

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Monthly Dividends and ETF Investing

Two of the most popular topics in today’s video, monthly dividends and ETF investing. Combine the two and…what’s not to love? Dividends account for nearly half the total return on stocks and who doesn’t like getting paid to invest. And exchange traded funds just makes investing so much easier and stress-free.

But as is so often the case in investing, it’s not the lack of options, it’s having too many options and how to find the best stocks or funds for your portfolio. So in this video, I’m going to be using the new ETF screener on Stockcard to show you how to combine these two topics to find monthly dividend ETFs for your portfolio.

I’ll leave a link to Stockcard in the video description below. Click through and then go to Portfolios in the top menu, you’ll find the Bow Tie Nation portfolio in this Stock Picks section. It’s free to follow and you’ll get email notifications whenever I buy or sell from the portfolio.

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How to Find Monthly Dividend ETFs for Your Portfolio

The new ETF screener is a great place to start, narrowing down your list of funds to find the perfect fit for your portfolio. You can toggle back and forth here between the stock and fund screener and then select your filters below.

Since we’re looking for monthly dividend ETFs, we’ll start by filtering for those and at any time, you can click apply to see how many funds meet the criteria. Here we see 866 ETFs pay out monthly dividends so we want to click back into edit and narrow that list.

The first filter I’m going to use is for passive ETFs which generally tend to have lower expense ratios. That’s not saying actively managed funds can’t justify the higher fees with better returns but I want to stick with low-cost funds here.

I also want to filter only for funds with assets over $50 million and there’s a reason here that most investors don’t understand.

You see, a fund isn’t usually profitable for the provider until it reaches about $30 million in assets. That’s the point where the fees cover actual fund costs. So what happens, and this is a big problem for ETF investors, is that if you’re investing in the smaller funds then you run the risk of the fund shutting down after a few years. Now that doesn’t mean you lose your investment, at that point, the fund liquidates and sends out a check to investors but it may also mean you owe capital gains taxes on the sale.

Beyond those two criteria, we’ll also filter for only those ETFs with at least five years of history, a track record to make sure the fund works. And finally, I’m going to filter for funds paying a 3% to 10% dividend yield and click apply.

And we see just these five criteria have narrowed our list of monthly ETFs to 63 funds that we can look at more closely to pick our top seven. Of course, feel free to play around with the filters to narrow the list a more or less but I’m going to use these to find those best ETFs.

7 Monthly Dividend Funds to Buy Now for a Diversified Portfolio

monthly dividend etfs

The Invesco S&P 500 High Dividend, Low Volatility ETF, ticker SPHD is a favorite among investors and pays a 3.9% yield.

This is a great dividend stock ETF because it combines the search for those high yields with a lower risk profile in those with lower volatility. The fund invests in 50 stocks of U.S. companies with high dividend yields that have also historically been safer than others. It’s a little more concentrated in a few sectors including real estate, utilities, financials and staples but those just tend to be less volatile than the economically sensitive ones.

Dividends have held up surprisingly well on this one, probably due to the fact that companies are less sensitive to the economy. The dividend payment has increased more than 50% over the last five years from $0.094 to $0.15 per share each month.

The expense ratio is lower on this one, just 0.30% and because it’s a stock ETF, there’s still some upside price potential on the shares besides that dividend.

The next fund, the SPDR Bloomberg Barclays Convertible Securities ETF, ticker CWB, has the lowest dividend yield at just 2.2% but I wanted to include it because it also has one of the best for total return potential. Look at a chart of the shares over past two years, a 65% return, well over the 50% return on stocks in the S&P 500.

The trick is, the fund invests in corporate bonds with an average coupon of 2.5% – that’s where it gets the dividend return, but these bonds are also convertible into shares of stock if the stock price increases. That means investors get all the safety and cash flow of bonds but the upside potential in stocks.

The fund holds 243 bonds across mostly industrial, utility and financial sectors with biggest holdings including Tesla, Wells Fargo and Carnival.

The dividend payment has come down on this one as interest rates decrease and bonds yield less but that total return still makes it a good addition and the expense ratio of 0.4% is still pretty cheap.

And this brings up an important point I wanted to make, that you shouldn’t just focus on stock funds for your portfolio. Of course, pure stock ETFs are going to produce those higher returns when the market is going up but over the longer-term, through many market cycles of crashes and recoveries, having a mix of these stock funds, bond funds and then the hybrids like this convertible bond fund are going to give you a great balance between return and safety.

This next monthly fund is a great one, the Global X Super Dividend ETF, ticker SDIV.

The fund holds 100 of the highest dividend paying stocks globally and produces a 6.8% annual yield, which is more than four-times the market average. The expense ratio is 0.6% which is higher than most but there’s still a lot to like about this one.

The monthly dividend has come down a little as that share price has jumped higher and companies haven’t yet raised their dividends but it’s a well-diversified fund across different industries and internationally. I especially like the exposure to stocks in other countries which is something most investors lack.

The stocks in the fund sport a low 10.3 price-to-earnings ratio, a factor of so many being shares of cheaper international companies. It’s less than half the PE ratio on U.S. stocks so this is a good value play as well as for that dividend yield.

The iShares Morningstar Multi-Asset Income Fund, ticker IYLD, is a really interesting opportunity and not just for its 3.7% dividend yield.

Instead of investing directly in stocks or bonds, this fund is a fund-of-funds. It holds 10 income funds across the asset classes. So you see here, it’s got high-yield bonds, international stocks. It invests in emerging market debt and U.S. Treasury bonds as well as real estate and preferred shares.

The fund has a target of 60% in bonds, 20% in stocks and 20% in alternative income investments. It also holds about 45% of the portfolio in international assets, so strong diversification here.

That large weighting in bonds gives it a high level of safety though it still holds enough in other assets and sectors for a good total return.

The drawback here is because it is a fund-of-funds, the expense ratio is higher at 0.6% annually. You’re essentially paying the expense ratios of the funds in the portfolio, plus the management to run this fund…so if you wanted a cheaper way to do this, you could just invest in the original funds in the same weightings and cut maybe two-tenths of a percent off your expenses.

And a few of these funds brings up a question that I want to get your feedback on. A few of these, the share price has run so high that the dividend isn’t that impressive anymore even if the total return has still been really good. So my question is, does dividend yield matter as much to you if you’re getting that high total return? Let me know in the comments below, would you rather see ETFs or stocks only with higher yields or a mix of that yield and price returns?

This next one we’ve highlighted before, the VanEck Vectors Fallen Angel High Yield Bond ETF, ticker ANGL.

The fund invests in bonds that were issued with an investment-grade rating, so a strong financial rating, but that have been downgraded into high-yield. This is usually on slightly weakening financials or if the company adds more debt but 93% of the bonds in the fund are in the first two risk ratings just below investment-grade, so still fairly safe investments.

What happens is when these fallen angels get downgraded, the price of the bond comes down but it’s still paying that coupon so the interest rate goes up. Since they’re still solid companies, the default rate is low and this group of bonds has outperformed the broader high-yield index in 11 of the last 15 years.

The fund itself has produced an 8.4% annualized return since 2012 which is really good for a bond fund and pays a 4.5% dividend yield. The expense ratio is just 0.4% and again, these are bonds of good size companies like Sprint and Freeport McMoRan.

Almost three-quarters of the fund is in bonds of U.S. companies with the rest in developed nations and it’s well diversified across sectors as well with bonds from companies in nine sectors.

Our next dividend ETF is another hybrid, the Global X SuperIncome Preferred ETF, ticker SPFF, investing in preferred shares with the highest dividend yields.

Now a preferred share is somewhere between stocks and bonds. It’s not a debt obligation like a bond but includes a fixed dividend payment that’s higher than most stocks. Preferreds get their dividend paid out before stockholders so it’s a little less risky and most convert to a regular stock at a certain price.

So preferred shares don’t have quite the upside return as stocks but offer higher yields and the safety of bonds.

The Global X Fund invests in the 50 highest-paying preferred shares and produces a 5.6% dividend yield against an expense ratio of just 0.6% which is really good for one of these specialized ETFs.

The fund skews a little towards financials and bank stocks because those happen to be the ones that pay the highest yield on preferred shares. You’ve got a lot of big bank names in here like Wells Fargo and JP Morgan along with some smaller names like Ally Financial. The fund has actually produced a 13% total return over the last year so there is some room for price appreciation besides just that dividend yield.

The iShares Preferred and Income Securities ETF, ticker PFF, is a similar theme and pays a higher yield of 4.5%

So this is in that same preferred shares theme as the last fund, so you don’t necessarily need both but I wanted to highlight each to give you more options. It’s a part of the market most investors neglect so it’s nice seeing a fund that gives you easy, one-stop access to it.

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The PFF holds 512 preferred securities with an average price-to-earnings ratio of just 9.5-times, which again is about half the market average. The fund price also tends to be about half as volatile as the stock market, so definitely that idea of safety and cash flow.

It’s pretty heavily weighted to the financials sector, with about 54% in banks, diversified financials and insurance because that’s the sector that issues these types of preferred shares the most.

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