Trader Gregory Rowe, center, and others work on the floor of the New York Stock Exchange Monday, March 16, 2020. (AP Photo/Craig Ruttle)
Want to make money in the stock market? Here’s an idea. Instead of buying regular common stocks, buy exchange-traded funds (ETFs).
Exchange-traded funds are a modern version of mutual funds. Like mutual funds, exchange-traded funds hold a portfolio of individual stocks, bonds, or closed-end funds. The advantage of exchange-traded funds over mutual funds is that ETFs are a lot less expensive to own, plus they offer some unique features. For instance, many exchange-traded funds, including the ones I’m going to describe, have developed supplemental income strategies that allow them to pay significantly higher dividends than you’d expect, considering their holdings.
The advantage of holding exchange-traded funds over individual stocks is that you don’t have to spend your free time analyzing stocks. The exchange-traded funds employ professionals to do that.
High Paying Market Beating ETFs
I’ve picked four exchange-traded funds based on their average annual total returns (dividends plus price appreciation) for the past two years. By comparison, the S&P 500 index’s average annual return was 6.9% for that period.
I’ve also added a “wild card;” an ETF that that doesn’t qualify for my main list because it hasn’t been trading long enough to establish a two-year trading record. Why did I add it? I couldn’t resist. You’ll understand why when you read the description.
1) InfraCap MLP (ticker: AMZA): Holds Master Limited Partnerships that mostly own and operate crude oil and natural gas pipeline systems. Pays monthly dividends equating to an 8.7% dividend yield. Average annual total (divs plus price change) return for two years: 24.5%.
2) Franklin International Low Volatility High Income Index (LVHI): Holds high-yield, underpriced common stocks issued by companies in developed countries outside the U.S. Pays quarterly dividends paying 8.1%. The two-year average annual return is 9.8%.
3) Simplify Volatility Premium (SVOL): Holds U.S.-based equity and fixed-income (debt) assets; Employs long & short strategies intended to produce income while minimizing risk. Pays monthly dividends paying 16.1% (not a typo). The two-year average annual return is 11.3%.
4) Fidelity High Dividend (FDVV): Tracks index of mid- and large-cap stocks expected to grow dividends. Pays quarterly dividends equating to a 3.7% dividend yield. The two-year average annual return is 8.3%.
Wild card
JPMorgan NASDAQ Equity Premium (JEPQ): uses options and other derivatives to acquire holdings in both growth and value-priced members of the NASDAQ 100 index. It pays monthly dividends equating to a 9.1% yield. It’s a wild card because it only started trading in May 2022. Thus we won’t have two-year return data for four months. In the meantime, it has returned 33.8% in the 12 months ending Jan. 24. Now you know why I couldn’t resist adding it. That said, given its short history, it’s a speculative play. So, don’t put serious money here.
Those are my ideas. But do your due diligence. The more you know about your holdings, the better your results. All numbers as of after the close on Wednesday.
Harry Domash of Aptos publishes the Winning Investing and the Dividend Detective websites. Contact him at www.winninginvesting.com or Santa Cruz Sentinel, 318 Encinal St., Santa Cruz, CA 95060. To see previous Domash columns, visit santacruzsentinel.com/topic/Harry_Domash.
