For some investors, particularly those in the withdrawal phase of their investment journey, the primary goal isn’t necessarily to maximize total returns. Instead, they are often focused on generating steady, consistent monthly income to support their retirement plans.
This objective can sometimes be achieved by selling shares, but some investors are hesitant to do so due to a psychological bias against selling hard-earned assets they’ve accumulated over time.
To address this, a variety of exchange-traded funds, or ETFs, are available, each designed with a singular focus: to provide consistent, higher-than-average monthly income. These ETFs employ diverse strategies and invest in various assets, all geared toward achieving a steady income stream.
For income-focused investors, especially those in retirement or nearing it, these ETFs can be an integral part of their financial strategy, ensuring a continuous flow of income to meet their monthly financial needs.
“Another key benefit of income ETFs compared to selecting a few individual companies is diversification, as they invest in a basket of income-generating assets that can help to mitigate risk and provide a more stable income stream,” says Rohan Reddy, director of research at Global X ETFs.
However, it’s important to note that these high-yield ETFs may not offer substantial capital appreciation. Their primary purpose is not to grow your principal aggressively but to maintain it while distributing income regularly.
This makes them particularly appealing to those who rely on their investment portfolios for regular income, as they can continue to receive funds each month without having to sell off their assets, but less so for younger investors trying to grow a portfolio.
Here are seven of the best high-yield ETFs to buy in 2023 for income:
| ETF | Dividend yield (trailing 12 months) | Expense ratio |
| Global X U.S. Preferred ETF (ticker: PFFD) | 6.9% | 0.23% |
| Global X Nasdaq 100 Covered Call ETF (QYLD) | 12.6% | 0.6% |
| JPMorgan Equity Premium Income ETF (JEPI) | 9.1% | 0.35% |
| Alerian MLP ETF (AMLP) | 7.8% | 0.85% |
| Global X SuperDividend REIT ETF (SRET) | 8.4% | 0.59% |
| iShares iBoxx $ High Yield Corporate Bond ETF (HYG) | 6% | 0.49% |
| Invesco Zacks Multi-Asset Income ETF (CVY) | 5.4% | 1.06% |
Global X U.S. Preferred ETF (PFFD)
“Preferred shares are an interesting ‘hybrid strategy’ – they sort of act like debt, but also move like equities,” says Derek Horstmeyer, professor of finance at the George Mason University School of Business. “If you want an income-generating asset class that has more risk than bonds but less risk than equities, they might appeal to you.” To access preferred shares, consider PFFD.
Picking individual preferred share issues can be difficult, as each one comes with unique terms and payouts. By buying PFFD, investors gain access to a much more diversified basket of 212 issues at a 0.23% expense ratio, many of which hail from financial sector companies. Currently, PFFD has a 6.9% 12-month trailing yield, and it also pays monthly distributions.
Global X Nasdaq 100 Covered Call ETF (QYLD)
“Covered call ETFs invest in a diversified portfolio of stocks and sell, or ‘write,’ call options on the underlying individual companies or indices,” Reddy says. “The result is a regular income stream through the premiums received from selling call options.” Essentially, these ETFs trade the upside potential from their underlying investment into an immediate cash payout.
One of the most popular covered call ETFs is QYLD, which sells covered calls on the Nasdaq-100 index. Thanks to the Nasdaq-100’s high volatility, QYLD is able to generate high premiums, with a 12.6% 12-month trailing yield. This ETF has made consistent monthly distributions for nine years running. However, it does charge a higher 0.6% expense ratio.
JPMorgan Equity Premium Income ETF (JEPI)
Another highly popular covered call ETF to watch is JEPI. This ETF has accrued around $30 billion in assets under management, or AUM, since its debut in May 2020. Unlike QYLD, JEPI does not sell covered calls on an index. Rather, the ETF starts by actively selecting a portfolio of stocks designed to provide the bulk of the S&P 500 index’s returns, but with less volatility.
Then, the ETF deploys a covered call strategy to generate high monthly income. However, unlike QYLD, JEPI does not sell index call options directly. Because JEPI does not hold all of the constituent S&P 500 index stocks, it must use equity-linked notes, or ELNs, with a counter-party to obtain its covered call exposure. JEPI charges 0.35% and pays a 12-month yield of 9.1%.
Income investors looking for a high-yield asset with potential inflation-hedging properties can…
Read More: 7 High-Yield ETFs for Income Investors | Investing