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How to Invest in High-Dividend ETFs? 5 US ETFs to Consider

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Moomoo Research wrote a column · Apr 18 21:22
Since the beginning of this year, with the end of the rate hike cycle, the market's expectation of a decline in US dollar rates has become increasingly strong. Therefore, the US market has recently sparked a wave of high-dividend investments, with more and more people choosing to invest in high-dividend products to hedge against the risk of falling stock prices.
Although there are high-dividend companies in various sectors of the market that are willing to reward shareholders, for investors who are not good at stock selection, there is a more stable and secure way to invest in stocks - high-dividend ETFs. High-dividend ETFs mainly use the "cash dividend distribution status" to determine the constituent stocks and the weighting of holdings. Especially in the recent double fluctuations in the political and economic situation, the trend of individual stocks is difficult to judge. Investing in high-dividend ETFs can regularly obtain substantial returns. Different products can diversify risks by tracking different stocks, making it a great product for conservative investors seeking stability.
So, what indicators do we need to pay attention to when choosing high-dividend ETFs? Generally speaking, we can start from three aspects: "index", "return performance" and "ETF mechanism".
- Step one, index: understand the assets you are buying
High-dividend ETFs usually track specific dividend indexes, such as the Hang Seng High Dividend Yield Index, the S&P High Yield Dividend Aristocrats Index, etc. These indexes are usually composed of stocks of companies that pay stable and relatively high dividends in the market, but the specific holdings may vary. As a savvy investor, we should have a basic understanding of the ETF's holdings and stock selection logic to avoid the occurrence of "one bad apple spoils the whole barrel" situation.
- Step two, return performance: understand how the yield and dividend rate work
The reason why people buy high-dividend ETFs is definitely because they have high expectations for their stable and relatively high dividend yields. Therefore, when selecting products, we need to compare the current yield and dividend rate of different high-dividend ETFs, and choose products with strong and sustainable dividend payment capabilities based on dividend growth trends.
- Step three, ETF mechanism: reduce the margin of "middleman's profit"
Institutions launch a basket of stock products ETFs for direct purchase, which inevitably requires a management fee as compensation. As investors, we should also compare the fees of different products. ETF management fees and operating costs directly affect the net return, and lower fees are conducive to improving investors' net income. In addition, for this special category of high-dividend ETFs, investors should also pay attention to their dividend frequency. If the ETF allows dividends to be reinvested, more frequent dividends can help investors accumulate shares faster through compound interest. However, if investors do not need immediate cash flow, fewer but larger dividend payments that are equal in total may be more advantageous due to reduced transaction costs and taxes.
Below, we will recommend several high-dividend ETFs in the US stock market, and you can choose according to your investment preferences:
This is a Covered Call ETF issued by J.P. Morgan, which tracks companies in the S&P 500 and provides incremental income to investors through the option premiums from selling call options. It aims to provide monthly distributable income and stock market exposure with lower volatility. According to data provided by J.P. Morgan, this ETF:
1. Provides an extremely attractive 12-month rolling dividend yield of 8.50% and a 30-day total return of 7.04%;
2. Ranks in the top one-third of products in the same category in terms of yield;
3. Has a competitive price compared to peers, with a management fee of only 0.35%.
How to Invest in High-Dividend ETFs? 5 US ETFs to Consider
This ETF tracks the Russell 2000 Index, which represents the performance of 2,000 smaller companies in the U.S. market and is generally considered a benchmark for the small-cap stock market. By selling call options on 50% of the investment portfolio, the product allows investors to capture half of the upside potential of the underlying index. As of now, the ETF has an asset size of approximately $1.4 billion, a management fee of 0.35%, a dividend yield of 12.56%, and an average annual Fund NAV growth of 12.74%.
How to Invest in High-Dividend ETFs? 5 US ETFs to Consider
This ETF was established in December 2010 and tracks the KBW Nasdaq Financial Dividend Yield Index. It mainly invests in US real estate investment trusts and the financial industry, holding only 41 stocks. Key holdings include Dynex Capital, Ellington Financial Inc, and Western Union.
This ETF has a high dividend yield, exceeding 10%.
As of now, the ETF has an asset size of approximately $359 million, a management fee of 0.35%, a dividend yield of about 12.3%, and a 30-day SEC yield of 11.9%, with monthly dividend payments.
How to Invest in High-Dividend ETFs? 5 US ETFs to Consider
This ETF mainly invests in US technology growth stocks, such as AI, semiconductors, and other tech giants such as Microsoft, Apple, and Nvidia. It generates additional income through Covered Call, which involves buying stocks in the NASDAQ-100 Index and selling corresponding call options on the same index to earn option premiums, and then distributes dividends to buyers. This approach can generate higher returns during periods of volatility.
As of now, the ETF has an asset size of approximately $8.1 billion, a management fee of 0.61%, a dividend yield of 11.70%, and a 12-month yield of 12.32%, with monthly dividend payments.
How to Invest in High-Dividend ETFs? 5 US ETFs to Consider
If you are also interested in other overseas markets outside the US, you can choose this ETF for high dividend investments. It focuses on large markets outside the US, mainly in countries such as the UK, Australia, South Korea, Japan, and Spain. Key holdings include London mining giant Rio Tinto (RIO) and Japanese shipping giant Nippon Yusen Kabushiki Kaisha (NPNYY), which also have a high dividend yield of about 7%.
As of now, the ETF has an asset size of approximately $4.1 billion, a management fee of 0.51%, a dividend yield of 6.79%, and a 5-year yield of 10.75%, with quarterly dividend payments.
How to Invest in High-Dividend ETFs? 5 US ETFs to Consider
In terms of dividend taxes, generally, the US government levies about a 30% tax on cash dividends from US companies. However, the 30% dividend tax rate does not apply to residents of countries that have signed tax treaties with the US. For example, the following are the dividend tax rates for residents of countries and regions that have signed tax treaties with the US: 10% for China, 15% for Canada, 10% for Japan, 15% for Australia, and 15% for New Zealand.
It is worth mentioning that the taxation method of ETFs also depends on the assets they hold. Since US Treasury bonds are tax-exempt at the state and local levels, if an ETF holding US Treasury bonds, such as TLT, pays dividends, it is also exempt from state and local income taxes.
Summary
For investors pursuing the dual goals of stable income and potential capital appreciation, US high dividend ETFs provide an ideal tool for effectively diversifying risk and obtaining passive income. They are a suitable choice for investors seeking returns while willing to sacrifice some upside potential.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more
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