Now here is something to be thankful for this Thanksgiving: Even more exchange traded funds that deliver their dividends on a monthly basis.
Following two successful (and popular) iterations of monthly dividend ETF lists, income investors demanded that we at least attempt to construct one more of these lists. That request has been granted. [ETFs for Monthly Dividend Hunters]
Our previous examinations of monthly dividend ETFs were limited to equity-based funds, but this list features multiple asset classes, including some that have long been favorites of income investors. [More Monthly Dividend ETFs]
There is more to the monthly dividend case than merely getting 12 payouts per year as opposed to four. Although there evidence does not suggest monthly dividend ETFs yield more than their quarterly counterparts, the monthly advantage shines through via increased compounding for investors opting for dividend reinvestment. That creates return advantages for some monthly dividend ETFs over time relative to their quarterly-paying rivals.
Let’s get started with the…
WisdomTree Equity Income Fund (NYSEArca: DHS)
Distribution Yield: 3.09%
Comment: For those interested in milestones, DHS recently joined the $1 billion in assets under management club. DHS has continued attracting investors this year due in part to a yield that is more than 80 basis points above the yield on 10-year U.S. Treasuries. Earlier this year, WisdomTree noted that almost 90 of the ETF’s roughly 400 holdings boasted higher yields than benchmark Treasuries
Notably, DHS is up about 310% since the March 9, 2009 market bottom, a performance that easily tops the 203% delivered by the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) over the same period. [WisdomTree Dividend ETF Tops $1B in AUM]
WisdomTree U.S. SmallCap Dividend Growth Fund (NasdaqGM: DGRS)
Distribution Yield: 2.9%
Comment: Not only is DGRS’ yield about 70 basis points above 10-year Treasuries, but it is also about 60 basis points higher than the dividend yield on the Russell 2000 Index. DGRS has slightly outperformed the benchmark small-cap index over the past 90 days, underscoring the notion that dividends are advantageous with small-caps, particularly at times when smaller stocks are out of favor.
Deutsche X-Trackers Municipal Infrastructure Revenue Bond Fund (NYSEArca: RVNU)
30-Day SEC Yield: 2.69%
Comment: It is not surprising that a bond ETF, municipal or otherwise, appears on this list because most bond ETFs make monthly distributions. RVNU makes an appearance not only because it compensates investors every month, but also because the ETF is a departure from the ordinary municipal bond ETF.
RVNU avoids rising public pension risk by focusing solely on bonds that fund federal, state and local infrastructure projects such as water and sewer systems, public power systems, toll roads, bridges, tunnels, and many other public use projects where the interest and principal repayments are generated from dedicated revenue sources. [More Unique ETF Sources of Yield]
WisdomTree Total Dividend Fund (NYSEArca: DTD)
Distribution Yield: 3.05%
Comment: DTD has lagged some utilities-heavy dividend ETFs this year because the WisdomTree offering allocates less than 6.6% of its weight to that sector. DTD’s low combined allocation to aggressively valued defensive sectors (staples, utilities and telecom combine for less than a quarter of the fund’s weight) could serve the ETF well next year if interest rates rise.
Additionally, DTD does not make a habit of lagging. Over the past five years, DTD outperformed 92% of its actively managed mutual fund rivals.
ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSEArca: MORL)
Current Annualized Yield: 21.49%
Comment: MORL is the double-leveraged ETN equivalent of the Market Vectors Mortgage REIT Income ETF (NYSEArca: MORT) and, no, that whopping yield is not a typo. However, it comes at a cost. That cost being an annual tracking rate of 0.4% that accrues on a daily basis.
Market Vectors Preferred Securities ex Financials ETF (NYSEArca: PFXF)
30-Day SEC Yield: 5.87%
Comment: Now nearly two and a half years old, PFXF is flirting with $200 million in assets under management. That says the ETF has been popular with income investors that like interest rate-sensitive preferred stocks, but why PFXF has been popular is important, too. Simply put, when PFXF came to market, it was the first preferred stock ETF to not feature a massive weight to financial services issuers.
While PFXF allocates a combined 38.5% of its weight to preferreds issued by REITs and insurance, that financial services exposure is quite low compared to other preferred ETFs.
PowerShares Variable Rate Preferred Portfolio Fund (NYSEArca: VRP)
30-Day SEC Yield: 4.89%
Comment: Speaking of unique avenues to preferred ETF exposure, VRP is already up to $101.4 million in AUM, making it one of the most successful ETFs to debut in 2014.
For the investor that wants to maintain preferred exposure in a rising rate environment, VRP is the ETF of choice. Variable-rate preferreds usually carry lower interest rates than fixed-rate preferreds of comparable credit quality. However, the trade-off there is an ETF such as VRP should be less sensitive to interest rate changes. [New Preferred ETF Off to Fast Start]