What are the best dividend yielding ETFs to buy in Q4 2023?
Looking to boost your income? The Bank of England has been raising interest rates in response to inflation but the interest rates on savings accounts have not necessarily risen accordingly. One way to generate income from your capital could be to invest in dividend-yielding ETFs. These are passively managed funds which invest in quality companies with a track record of paying decent and regular dividends to shareholders.
Buying exchange-traded funds can be a cheaper way to invest in the stock market than buying shares or actively managed funds because the charges tend to be lower. It also means you invest in a basket of investments rather than individual shares, which can spread the risk by not putting all your eggs in one basket. You can learn more about ETFs here.
However, investing in exchange-traded funds is not without its risks. Do ensure the risk profile of the ETFs is suitable for your needs. Only invest money you can afford to lose.
The following ETFs have been selected for their market capitalisation and dividend yields, and the quality of their underlying investments, as well as their previous investment performance.
Vanguard Dividend Appreciation ETF
The Vanguard Dividend Appreciation ETF aims to track the performance of the S&P U.S. Dividend Growers Index. It invests in large-cap US traded stocks, with a track record of growing their dividends each year, with a full-replication approach – meaning it holds the stocks. The fund currently has a market cap of $186.8 billion and holds 314 stocks in its portfolio. Vanguard rates its risk profile as moderate to aggressive.
Its top 10 holdings are tech giants Microsoft, Apple, healthcare firms Johnson & Johnson, United Health Group, consumer goods company Procter and Gamble, Exxon Mobile, JP Morgan Chase, semi-conductor firm Broadcom, Visa and Mastercard. Around 22% of its holdings are in the IT sector, with 17% in financials, 15.7% in healthcare and 11% in consumer staples.
On an annualised basis, total returns are 10.75% over 1 year, 12.63% over three years, 11.42% over five years and 11.28% over 10 years. The fund’s expense ratio is relatively low at 0.06% and it pays its dividends on a quarterly basis. It currently has a dividend yield of 2%.
WisdomTree Emerging Markets Equity Income UCITs ETF
The WisdomTree Emerging Markets Equity Income UCITS ETF seeks to track the WisdomTree Emerging Markets Equity Income index. It invests in the highest dividend-yielding firms based in emerging market countries, such as Brazil, South Korea, Mexico and China, checking them against its risk management criteria. Companies that do not meet WisdomTree’s ESG (environmental, social and governance) standards are not selected. The firms must also have a minimum level of liquidity requirements and have paid dividends previously.
Its top 10 holdings include Brazilian state-owned energy firm Petroleo Brasileiro SA (Petrobras), South Korean steel giant Posco Holdings, Taiwanese semi-conductor company MediaTek Inc, China Construction Bank Corp, mining and infrastructure firm Grupo Mexico SAB de CV, Industrial & Commercial Bank of China and Taiwanese plastics giant Nan Ya Plastics Corp.
Around 34% of its holdings are based in Taiwan, 19% in China, 10% in Brazil and 8% in South Korea. Nearly 25% of its holdings are in the financial sector, 24% in IT, 19.6% in materials and 10% in energy stocks. Currently, the fund has delivered an average increase in net asset value of 9.35% over three years and 19.74% over one year. The fund is ISA, SIPP and UCITS compliant and the total expense ratio is 0.46%. According to JustETF.com, it has a dividend yield of 7.6%.
L&G US Energy Infrastructure MLP UCITS ETF
The L&G US Energy Infrastructure MLP UCITS ETF tracks the Solactive US Energy Infrastructure MLP index. This index follows companies that generate most of their earnings from the US energy infrastructure market, including pipelines and storage facilities for natural gas and crude oil. The fund, worth $35.5 million, replicates the performance of the underlying index synthetically using a swap.
It’s worth noting that L&G rate this ETF as a 7 in terms of risk – its highest rating – so it may not be suitable for investors with a lower appetite for risk.
The fund’s top 10 holdings include US midstream crude oil firms Plains All American Pipeline, Crestwood Equity Partners, Western Midstream Partners, Energy Transfer Partners, Magellan Midstream Partners and NuStar Energy. In total, 96% of the fund is invested in energy stocks, with 4% in industrials. It has delivered a return of 17.75 over one year, 155% in three years and 43.77% over five years.
This ETF is UCITS, SIPP and ISA complaint. Dividends are paid on a quarterly basis to investors. The fund has a total expense ratio of 0.25% and the current dividend yield is 7.5%, according to JustETF.com.
JPMorgan ICAV Global High Yield Corporate Bond Multi-Factor UCITS ETF
This ETF follows the JP Morgan Asset Management Global High Yield MultiFactor Index.
As its name suggests, the fund invests in high-yielding globally-listed corporate bonds – corporate debt – by physical replication. It has 575 holdings and is currently worth $151.6 million. The fund launched fairly recently in 2020.
Its top 10 holdings include bonds in US telecom firm ATT, healthcare companies Organon and DaVita Healthcare, IT security provider McAfee, Brazilian energy firm Petrobas, Iron Mountain, Hilton, Germany company Schaeffler Technologies and Israeli pharmaceutical company Teva.
The ETF has delivered a return of 5.5% over one year and 1% over three years. Income is distributed to investors on a half-yearly basis. According to JustETF, the fund yields 8.4%.
The fund is UCITS compliant and JPMorgan lists its risk profile as moderate. The ETF’s expense ratio is 0.35%.
Past performance is not a guide to future performance.