Pinpointing the perfect stock to buy is a project that has the potential to chew up hours of your time. In many situations, it is better to simply buy an ETF. In fact, some ETFs pay fairly high dividends, most of which are nearly guaranteed to be distributed.
It was not long ago when the number of ETFs was limited to a reasonable amount that any retail investor could sort through and analyze in his or her spare time. My, how times have changed. Today, there are seemingly countless ETFs, some of which are worthy of your money and others that should be avoided in favor of stocks. If the majority of your money is in stocks, it is time to diversify through ETFs that pay a dividend.
Below, we identify three “Strong Buy” rated ETFs that pay solid dividends: SPDR S&P Dividend ETF (SDY), iShares iBoxx $ High Yield Corporate Bond (HYG) and the Global X NASDAQ-100 Covered Call ETF (QYLD).
SPDR S&P Dividend ETF (SDY)
The aim of SDY is to generate results that align with that of an index that tracks publicly traded companies that have paid dividends over time. Check out SDY's POWR Ratings and you will find the ETF has "A" grades in the Industry Rank, Trade Grade and Buy & Hold Grade components. SDY is ranked 6th of 82 in the Large Cap Value ETFs category. SDY is reapproaching its pre-coronavirus trading level of $105 - $110.
SDY provides a dividend yield of 2.69%. In short, if you are looking for the most consistent dividend-paying stocks from the S&P 500 grouped into an ETF, this is it. In fact, SDY's holdings strictly include businesses that have hiked their dividend for two straight decades. You will be hard-pressed to find a safer investment than the SDY ETF. Even if the economy remains mired in a recession for another year, the majority of the stocks that comprise SDY will continue to pay out their dividend payments to investors.
The bottom line is the companies that comprise SDY are reliable and trustworthy. You can invest in SDY in full confidence, knowing your hard-earned money will work just as hard for you, providing a dividend payout that is almost certain to be distributed as planned.
iShares iBoxx $ High Yield Corporate Bond (HYG)
The goal of HYG is to replicate the investment results of an index consisting of high yield corporate bonds. HYG's holdings are primarily in the industrial and financial sectors. SDY's top holdings are Exxon Mobil Corporation at 3.43%, Chevron Corporation at 2.65%, People's United Financial at 2.43% and AT&T at 2.32%.
The HYG POWR Ratings are fantastic: "A" grades in the Buy & Hold Grade and Trade Grade components along with a "B" Industry Rank grade component. HYG is ranked first of nearly 50 ETFs in the High Yield Bond ETFs.
Though HYG slid below $70, it has gradually climbed back up, moving back toward its pre-COVID trading level of $88. Most important is the fact that HYG pays a dividend yield of 4.90%, meaning it is a fairly safe investment during these increasingly uncertain times.
Global X NASDAQ-100 Covered Call ETF (QYLD)
The objective of this ETF is to match the investment results of the CBOE NASDAQ-100 BuyWrite Index that measures the return of portfolios containing stocks of the 100 publicly traded companies in the NASDAQ-100 along with call options pertaining to those stocks executed through covered calls or buy-write strategies.
With a whopping dividend yield of 11.17%, QYLD is hard to ignore. This ETF is gradually working its way back up toward its pre-COVID price level of $23 to $24. The POWR Ratings reveal QYLD has an "A" grade in the Industry Rank, Buy & Hold Grade and Trade Grade components.
QYLD is ranked in the top 30 of nearly 200 Large Cap Blend ETFs. QYLD's top holdings are Apple at 12.74%, Microsoft at 10.40%, Amazon at 10.15%, Facebook at 4.23% and Tesla at 4.06%.
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SDY shares were unchanged in after-hours trading Wednesday. Year-to-date, SDY has gained 1.18%, versus a 14.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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