4 Attractive Monthly Dividend ETFs For May 2024

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Monthly income is not just for retired folks anymore. That’s apparently the case, given how much is being written and discussed these days about the concept of receiving dividend income from one’s investments. Around this time last year, a survey was released whose results included that 77% of retired Americans believe they have enough income to “live comfortably.” As someone who has seen the ebbs and flows of markets and investor sentiment over my 38-year career, I can’t help but wonder if that is a bit of the “recency effect” at work.

Investors have benefitted from strong appreciation in stock portfolios more often than not over the past several years. The annualized 15-year return of the S&P 500 Index is more than 14%, so the bad periods for stocks have been overwhelmed by the good times. But that is a double-edged sword, since past performance often not only fails to repeat itself, but tends to reverse. If stock returns from price gains were to be lower or even negative over the next 5 to 10 years, investors may need to figure out an alternate route.

This article discusses one such route, exchange-traded funds that pay a dividend to shareholders out of their value each month. For decades, quarterly was a typical dividend payout period. But the ETF industry has responded to the aging Baby Boomer generation’s need for predictable, regular investment income by offering an increased number of funds that pay income monthly. And, while investors can still lose money on the price return component of any mutual fund, stock or bond, the expanded lineup of monthly payers simply opens up more opportunities to choose from.

And, since even younger investors have taken to the idea of supplementing their working income by generating investment income, this is a timely topic to a broader audience than ever. So, as an ETF connoisseur for decades, here are four of many I have scouted over time, which represent different investment styles that all pay monthly dividends.

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Why Invest In Monthly Dividend ETFs

We tend to budget for our living expenses monthly, and get paid weekly, twice a month or perhaps monthly in our jobs. So quarterly income may be a bit out of sync for some investors. While getting paid 12 times a year means that those payments will be smaller than if they were received four times a year (via quarterly-paying ETFs), the higher frequency is more in line with our generally shorter attention spans, not to mention the budgeting aspects.

And, since bonds tend to pay income only every six months if owned individually, the monthly payment method is quite appealing to investors used to having to mix a set of bonds so that they could “ladder” the payments to occur more frequently. The other key advantage of monthly pay dividend ETFs is that for funds whose payout rates fluctuate, getting paid more often allows the shareholder to receive those more current rates each time, and on a timely basis.

How These Top Dividend ETFs Were Chosen

There are hundreds of monthly pay ETFs to choose from. I selected four that I have personal past experience with, though none of this should be considered advice or a recommendation at all. My familiarity with these drove my selection, as well as my opinion that most ETFs that target long-term bonds or so-called “credit” bonds (high yield, corporates, preferred stock, convertible bonds), with less than U.S. Treasury level credit features have systemic risks that could potentially threaten the payouts and value of such ETFs in the foreseeable future. No one can ever predict a “credit market event,” but given the high debt burdens of many companies, I decided to stick to stocks and Treasury securities this time out.

These ETFs all yield at least 4%, have been in existence for at least three years, and have at least $100 million in assets under management as of this writing.

4 Best Monthly Dividend ETFs for May 2024

Source: YCharts

1. Invesco S&P 500 High Dividend Low Volatility ETF
SPHD

ETF Overview

  • Years since inception: 11
  • Dividend Yield: 4.2%
  • Last Ex-Dividend Date: April 22, 2024
  • 1-Year Total Returns: 14.6%
  • Net Expense Ratio: 0.30%

Why SPHD Is A Top Choice

SPHD starts with the S&P 500 index, and through a series of filters and fundamental tests, whittles that index down by 90%, to about 50 stock holdings. Those are the ones judged to be the least volatile high-yielding component stocks within the S&P 500. The combination of low volatility and high yield tends to crowd out technology and communications stocks, which combined represent 11% of SPHD versus 40% for the S&P 500. SPHD’s dividend yield is more than three times that of the S&P 500, and the nature of its stock screening process allows it to make extensive changes to the portfolio at scheduled intervals. SPHD’s historical turnover is 67%, implying that about ⅔ of those 50 stocks are replaced in a typical 12-month period. Current top holdings include Altria Group
MO
, Kinder Morgan and AT&T.

2. Global X Nasdaq 100 Covered Call & Growth ETF (QYLG)

ETF Overview

  • Years since inception: 3
  • Dividend Yield: 5.6%
  • Last Ex-Dividend Date: April 22, 2024
  • 1-Year Total Returns: 25.4%
  • Net Expense Ratio: 0.35%

Why QYLG Is A Top Choice

While SPHD is a true stock portfolio inside an ETF wrapper, QYLG does own the full Nasdaq 100, but half of that portfolio is used as a base to write (sell) covered call options. That brings in yield in the form of option premium, and QYLG is essentially two portfolios in one. Half the assets seek to replicate the performance of the Nasdaq 100 index and the other half has very little price upside potential, but capitalizes on the volatility of the Nasdaq 100 to accumulate income. That takes a near-zero yielding corner of the stock market (the Nasdaq 100) and produces a high yield and upside potential. Top holdings include Microsoft
MSFT
, Apple
AAPL
and Nvidia.

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3. FT Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG)

ETF Overview

  • Years since inception: 6
  • Dividend Yield: 7.7%
  • Last Ex-Dividend Date: April 23, 2024
  • 1-Year Total Returns: 10.2%
  • Net Expense Ratio: 0.75%

Why KNG Is A Top Choice

KNG, like QYLG, employs covered call option writing. However, its base is not the Nasdaq, it is an index of stocks known as “dividend aristocrats,” those which have raised their dividend yields for decades. That tends to indicate fundamental strength, and also provides some dividend yield that is then supplemented by writing call options on the portfolio’s assets. Top holdings include C.H. Robinson Worldwide, Albemarle and Amcor.

4. iShares Treasury Floating Rate Bond ETF
TFLO

ETF Overview

  • Years since inception: 10
  • Dividend Yield: 5.3%
  • Last Ex-Dividend Date: May 1, 2024
  • 1-Year Total Returns:5.5%
  • Net Expense Ratio: 0.15%

Why TFLO Is A Top Choice

TFLO owns U.S. Treasury securities maturing in one to three years, but which have a unique feature. These bonds pay income at a rate that “floats,” or fluctuates with market interest rates. This makes TFLO a potential winner during periods of rising interest rates and inflation, though the opposite is also true.

Bottom Line

ETFs offer so many ways to earn income, and can do so on a monthly basis. Popular ETFs providers, include Vanguard, Fidelity and BlackRock
BLK
. For that reason, investors can look to hundreds of them to research and find the ones that match what they aim to do with their money when it comes to spinning out cash flow from investments each month, without having to sell holdings.

Frequently Asked Questions (FAQs)

Are Monthly Dividend ETFs Risky?

Any ETF is only as risky as its underlying portfolio of assets. Any stock ETF carries some degree of stock market risk and the stock market has had two drops of 50% or more this century. But when it comes to monthly dividend ETFs from asset classes such as short-term U.S. Treasury securities, barring a collapse of the U.S. Treasury, the risk of such ETFs should be considered much less than that of the stock or long-term bond markets.

Can I Reinvest Dividends From Monthly Dividend ETFs?

Yes, though typically this is done after the dividend has been received. Unlike mutual fund distributions and dividends, ETFs trade on the stock exchange, so like stocks, the income from them goes right into the shareholder’s account on payment date. Investors can check with their custodial brokerage firm to have dividends reinvested, and under what terms.

Are Monthly Dividend ETFs Tax-Efficient?

Tax efficiency is different for each investor, and so that is a question for an individual to ask their tax advisor about.

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The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download Forbes’ most popular report, 12 Stocks To Buy Now.