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Dividend exchange-traded funds are the ultimate in passive income. You do the work upfront to evaluate the fund's strategy, then monitor results and count the money that's flowing in. And since the payout drops to your account monthly, it's almost like earning a paycheck—without the boss, meetings or timecard.
If you're interested in building a passive income machine, read on to learn the benefits of monthly dividends. You'll also find six monthly dividend ETFs that are potential candidates for your portfolio.
Benefits Of Monthly Dividend ETFs
Monthly dividends have their advantages. For one, they're better than quarterly dividends for covering living expenses. You only have to budget the income 30 days at a time, rather than 90.
Monthly payouts are also convenient for reinvesting. Set up your ETF to reinvest monthly dividends automatically and you'll be practicing dollar cost averaging (DCA), which is a strategy to manage investment risk.
DCA involves investing on a scheduled cadence, such as monthly or weekly. Doing so limits the likelihood of purchasing shares at an abnormally high price. It also encourages you to make a habit of investing, no matter what's happening in the market. Continuing regular investments, even when the market is weak, keeps your cost basis lower in the long run. Lower costs go hand-in-hand with higher gains.
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How These Dividend ETFs Were Chosen
Gain potential through capital appreciation may be a secondary goal for you behind income, but it is a perk of investing in dividend stocks vs. bonds. So, our focus here is on equity ETFs. All six funds introduced below pay monthly dividends at a yield of 2% of more. For context, the dividend yield of the S&P 500 is about 1.4%.
Additionally, all six funds have expense ratios below 0.4%. They're also highly liquid and have total assets over $2 billion.
6 Best Monthly Dividend ETFs
The table below lists the six dividend ETF picks, ordered from largest to smallest in terms of total assets.
Fund websites
You can see that the two JPMorgan (JPM) funds have substantially higher dividend yields. Please review the detail below explaining the riskier strategy these funds deploy to realize those nice payouts.
1. JPMorgan Equity Premium Income Fund
JEPI
- Fund type: Large-cap equity and covered call options
- Share price: $53.63
- Expense ratio: 0.35%
- Inception date: May 20, 2020
- Number of holdings: 120
JEPI Overview
JEPI has quickly become a preferred ETF choice among income investors. In the fund's short history, it has amassed $33 billion in total assets—thanks to its impressive 30-day SEC yield of 6.98%. The 30-day SEC yield is a standardized and comparable yield calculation that considers investment income in the prior 30 days less fund expenses, divided by net assets.
The fund's goal is to deliver S&P 500 returns with lower volatility plus income. The strategy behind that goal involves a portfolio of low-volatility S&P 500 stocks plus equity-linked notes (ELNs) that sell call options with S&P 500 exposure.
Why JEPI Is A Top Choice
JEPI is an income producer and a popular one at that. While the fund has extra risk associated with the ELN side of the strategy, it also holds well-respected stocks. The largest holdings include some of the best stocks of 2024, such as Microsoft
One concern is the potential for income volatility, since income produced from the covered call strategy will vary based on market sentiment. Since its inception in 2020, JEPI's yield has fluctuated from more than 12% to under 7%.
2. JPMorgan NASDAQ Equity Premium Income Fund (JEPQ)
- Fund type: Large-cap equity and covered call options
- Share price: $53.67
- Expense ratio: 0.35%
- Inception date: May 3, 2022
- Number of holdings: 97
JEPQ Overview
JEPQ mirrors the strategy of JEPI using the Nasdaq-100 as the base index rather than the S&P 500.
Why JEPQ Is A Top Choice
JEPQ takes the strategy that's been successful with S&P 500 stocks and applies it to the biggest and best Nasdaq constituents. That produces a bigger yield, though it comes with more volatility.
3. Invesco S&P 500 Low Volatility ETF
SPLV
- Fund type: Large-cap equity
- Share price: $64.68
- Expense ratio: 0.25%
- Inception date: May 5, 2011
- Number of holdings: 101
Invesco S&P 500 Low Volatility ETF Overview
SPLV is an index fund that tracks the S&P 500 Low Volatility Index. This is a basket of 100 stocks within the S&P 500 that have had the lowest volatility over the prior year. The index and the fund are rebalanced quarterly.
Why SPLV Is A Top Choice
SPLV has the lowest yield of the funds on this list, but the advantage is the emphasis on less reactive stocks. It's a suitable choice for retirees and other investors who can't stomach huge value swings, but still prefer equities over bonds.
Top holdings you'll recognize include Berkshire Hathaway
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4. WisdomTree U.S. LargeCap Dividend Fund
DLN
- Fund type: Large-cap equity
- Share price: $71.09
- Expense ratio: 0.28%
- Inception date: June 16, 2006
- Number of holdings: 302
WisdomTree U.S. LargeCap Dividend Fund Overview
DLN includes large-cap, dividend-paying stocks that are screened for quality. The quality factors include return on equity, return on assets, gross profits to assets, cash flows to assets and recent risk adjusted total returns.
Why DLN Is A Top Choice
DLN has a good track record of producing yields above 2% plus total average returns in the double digits. With reputable stocks like Microsoft, JPMorgan, Apple
5. WisdomTree U.S. MidCap Dividend Fund
DON
- Fund type: Mid-Cap equity
- Share price: $48.16
- Expense ratio: 0.38%
- Inception date: June 16, 2006
- Number of holdings: 333
WisdomTree U.S. MidCap Dividend Fund Overview
DON uses the same quality screening methodology as DLN, applied to mid-caps. Relative to DLN, the portfolio is slightly larger and the expense ratio is 10 basis points higher.
Why DON Is a Top Choice
WisdomTree's selection of quality mid-caps are producing a higher dividend yield vs. their large-cap counterparts. Also, the mid-cap focus makes this fund a nice diversification play for investors who are already heavy in mega stocks. The top 10 holdings include electricity company Vistra (VST), financial services company Corebridge Financial
6. Invesco S&P 500 High Dividend Low Volatility ETF
SPHD
- Fund type: Large-cap equity
- Share price: $43.93
- Expense ratio: 0.30%
- Inception date: October 18, 2012
- Number of holdings: 51
Invesco S&P 500 High Dividend Low Volatility ETF Overview
SPHD tracks the S&P 500 High Dividend Low Volatility Index with the goal of providing bond-like stability plus a strong dividend yield. The index and the fund contain a tidy group of 50 S&P 500 constituents. The index selects the top 75 S&P 500 stocks by yield, then narrows the group down to the 50 companies with the lowest volatility.
Why SPHD Is A Top Choice
Yield-based weighting gives SPHD investors access to consistently strong yields averaging more than 4% over the past five years. The fund also has broad sector diversification, with double-digit exposure in utilities, consumer staples, real estate, energy and health care. As such, this fund should make a nice companion to tech-heavy Nasdaq-based funds.
Top holdings include tobacco company Altria (MO), Verizon (VZ) and energy company Kinder Morgan
Bottom Line
Monthly dividend ETFs provide a steady stream of passive income that's easy to budget, whether you're funding your living expenses or reinvesting. And, although there are fewer monthly payers than quarterly payers, you can find good funds at various risk profiles.
Look to JPMorgan's premium income funds if you can handle risk in exchange for a fat yield. Or, stick with low-volatility S&P 500 funds for a smoother ride paired with more modest income.
Frequently Asked Questions (FAQs)
Are monthly dividend ETFs suitable for long-term investors?
Long-term investors often favor capital appreciation over income, while monthly dividend ETFs take the opposite approach. However, monthly dividend ETFs can be a suitable diversification play for long-term investors, depending on the investing goal and other holdings in the investor's portfolio.
How can you invest in monthly dividend ETFs?
You can invest in monthly dividend ETFs by choosing an appropriate fund and placing an order within your brokerage account. If you don't yet have an account, see this list of best brokerage accounts for stock trading.
Can I reinvest dividends from monthly dividend ETFs?
You can reinvest dividends from a monthly dividend ETF if the fund allows it.
Are monthly dividend ETFs tax-efficient?
Monthly dividend ETFs are not tax efficient. The monthly income will be taxed as qualified or unqualified dividends, depending on how long the investor has owned the fund. Qualified dividends are taxed between 0% and 20%, while unqualified dividends use the investor's ordinary income tax rate.
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The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download Forbes' most popular report, 12 Stocks To Buy Now.
