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When you look into high-yield dividend ETFs, iShares Preferred and Income Securities ETF (NASDAQ:PFF), SonicShares Global Shipping ETF (NYSEARCA:BOAT), and ALPS REIT Dividend Dogs ETF (NYSEARCA:RDOG) likely aren’t the first ones on your mind. This is because most fresh capital looking for a 5% yield is going into covered call ETFs.
While this can be a smart thing to do if you want a good yield for the short to medium term, it can end up bruising you badly if the stock market declines. These covered call ETFs cap your upside potential while mostly leaving you exposed to the downside. Thus, you’re going to have a harder time recovering. During a market rally, they can put on an illusion of being a good deal since you get both upside exposure and the high yield.
However, it’s a good idea to look at some forgotten names if you want your compounding machine to last.
iShares Preferred and Income Securities ETF (PFF)
The PFF gives you exposure to preferred stocks. Preferreds are akin to a hybrid between stocks and bonds, meaning they offer a fixed yield and have a par value. These stocks are used by companies to raise more capital without resorting to diluting their existing common shareholders.
Preferred stocks are very attractive right now. Businesses prioritize commitments to preferred shareholders, and even if a dividend is missed, it accumulates and must be paid later.
In the event that a company declares bankruptcy, preferred shareholders are not the last in line. They get paid before common shareholders do, and the seniority reduces risk, though PFF has quality holdings that are unlikely to declare bankruptcy even in a recession.
PFE comes with a 6.12% dividend yield and distributes dividends monthly. The expense ratio is 0.45%, or $45 per $10,000. I expect it to deliver capital gains on top of the yield as the ETF sits at a discount due to higher interest rates not making the ETF as competitive despite the high yield. Once rates come down, it can perform very well.
SonicShares Global Shipping ETF (BOAT)
This ETF tracks the maritime shipping industry, something that doesn’t get as much attention as it deserves. Shipping is critical to global trade and binds economies together, and it’s worth investing in this overlooked ETF that gives you exposure to the biggest companies here.
BOAT invests in mid-to-large capitalization shipping companies listed on exchanges in select industrial countries that derive at least 50% of their revenue from specific maritime shipping activities. The ETF covers companies involved in transporting consumer and industrial products, vehicles, dry bulk commodities, crude oil, and liquefied natural gas across global waters.
BOAT is up 25.7% in the past year and over 30% when you take the dividends into account. I expect more growth in the coming years as shipping companies have benefited greatly from higher rates.
You get a 7.51% dividend yield. The expense ratio is 0.69%.
ALPS REIT Dividend Dogs ETF (RDOG)
The ALPS REIT Dividend Dogs ETF tracks the S-Network REIT Dividend Dogs Index. It applies a “Dogs of the Dow”-style strategy to U.S. real estate investment trusts (REITs) by selecting the five highest dividend-yielding REITs within each of nine REIT segments (such as office, retail, residential, and industrial) and weighting them equally for a total of 45 holdings.
REITs have been far more resilient than previously thought. They’ve survived through a period of turmoil and interest rate hikes at a record pace. Most of them are in the process of bottoming out and should thrive as interest rates come down. The industry has learned enough from 2008 that a catastrophic downturn is unlikely to repeat itself. The sector is an excellent way to get income, especially due to REITs being legally required to pay out at least 90% of their earnings as dividends.
You get a 6.59% dividend yield with a low expense ratio of 0.35%. I expect RDOG to return above $50 from its current price within two years.