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Get Instant Diversification With These 3 ETFs Yielding up to 5.1%

My parents are approaching retirement, and like many people their age, are looking for steady and secure income.

But like a lot of folks, they don’t really feel confident picking individual stocks. Rather than spending hours poring over balance sheets and annual reports, they’d rather spend their time with the grandkids or out in the garden.

So I set them up with a series of exchange traded funds, or ETFs. ETFs give my parents the security of knowing that one company isn’t responsible for a large portion of their income going forward, plus the flexibility of getting diversification across hundreds of different companies with just a few clicks of a mouse.

Even investors who pick individual stocks can benefit from having some of their holdings in ETFs. One such option, dubbed “core and explore” has an investor put the majority of their assets into a series of ETFs, allowing anywhere from 5-25% of the portfolio to be invested in individual stocks. For investors with a history of poor stock selection, it’s certainly something they should consider.

Let’s take a closer look at some ETFs that not only offer nice diversification, but also very generous dividend yields.

REITs

Investors looking for stable yields often go to the REIT sector to find it.

The iShares S&P TSX Capped REIT Index Fund  (TSX: XRE) holds 17 of Canada’s largest publicly traded REITs, giving an investor enough diversification to be able to easily weather a dividend cut from one of the underlying companies.

REITs have traditionally held up well even in poor markets, and are required to pay out the vast majority of their income in the form of dividends. That’s good news for investors who are looking to get paid now.

The iShares Capped REIT Fund yields a very impressive 5.1%, thanks to a recent sell-off in the sector. Plus, instead of quarterly distributions, investors are getting paid monthly, making it a great option for retirees.

Preferred shares

Preferred shares are the weird cousin of the investing world. They’re not quite stocks and they’re not quite bonds.

They do offer a lot of yield, especially if you go picking and choosing among them. Yields of 6%, 8%, and even 10% are possible, assuming you’re okay with assuming a lot of default risk. That might be acceptable for someone young, but certainly not an older investor looking to generate consistent income.

Which is why the Claymore S&P/TSX Canadian Preferred Share ETF (TSX: CPD) is such a great choice. Investors get instant diversification into 200 different preferred shares, none more than 1.6% of the entire portfolio. This ETF also pays a monthly distribution, and currently yields 4.7%.

TSX 60

The most commonly quoted Canadian index is the S&P TSX Composite. Also widely followed is the S&P TSX 60 Index, which consists of 60 of Canada’s largest stocks.

The iShares S&P/TSX 60 Index Fund  (TSX: XIU) is a low-cost option for investors looking to invest in Canada’s largest companies, most of which happen to pay generous dividends. For just 0.15% annually (or about the price of a coffee per $1,000 invested), investors get exposure to all of Canada’s largest banks, insurance companies, telecoms and oil companies.

The TSX 60 ETF currently yields 2.9%. It might not have a current yield higher than the others featured, but it does feature many dividend growth companies as its largest holdings. Look for that yield to creep up over time.

ETFs can be a good choice, especially for certain parts of your portfolio. But one disadvantage is missing out on the next winning stock. Our team of analysts has been hard at work identifying a top pick for 2015 that we think could beat the pants off any ETF, plus pay a consistent dividend along the way. Check it out.

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Fool contributor Nelson Smith has no position in any stocks mentioned.

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