Creating a dividend portfolio, especially for beginner investors, can be relatively challenging. That’s because it’s not as simple as putting the best-yielding stocks together. You have to take capital preservation/appreciation into consideration and ensure adequate dividend sustainability.
Otherwise, you will have to rebalance the portfolio quite frequently, which might not be a savvy capital preservation choice.
Dividend ETFs can be a decent intermediary and long-term solutions, and there are three high-yield ones that should be on your radar right now.
A covered call tech ETF
CI Tech Giants Covered Call ETF (TSX:TXF) is heavily invested in the U.S. tech market, and a relatively small portion (less than one-tenth) is from international tech investments (mostly non-Canadian). And while a heavy tech lean usually means growth, not dividends, the generous quarterly distributions of this ETF make it a perfect choice for those looking for decent income potential.
It’s currently offering a juicy, 12-month trailing distribution yield of about 10.5%, which is a number you would be hard-pressed to find in individual stocks, unless they are going downhill at a dangerous pace. The distributions vary wildly, but they have mostly gone up in the last three years. The price has also grown roughly 67% in the previous decade.
A global utilities ETF
Most stock investors might find a utility ETF like Harvest Equal Weight Global Utilities Income ETF (TSX:HUTL) familiar territory when it comes to dividends. The aim is to consolidate the primary strength of utilities and, partly, the energy sector into one diversified basket of securities. This passively managed ETF only has 30 underlying securities, and the top 10 include Fortis as well.
There is a decent number of European securities as well. Despite being passively managed, the fund comes with a high management fee of 0.5%, but that’s not too bitter a pill to swallow considering the ETF’s monthly distributions and the current yield of 6.9%. It also doesn’t vary its payouts and has been paying $0.1166 per month per share since 2019.
A covered call utilities ETF
If you are looking for something more locally focused, BMO Covered Call Utilities ETF (TSX:ZWU) might be more up your alley. It’s made up of 75 holdings, two-thirds of which are Canadian, and the rest are from the United States. The spread includes utilities, energy, and telecom. This ETF comes with a relatively higher MER (0.71%) but a lighter risk rating (low to medium).
As for the distributions, the current yield is 6.9%, which is generous enough. The distribution changes and is sometimes lowered but never by a significant enough margin. The monthly distribution frequency is an exciting feature, especially for people trying to create a passive-income source with this investment.
The stocks vs. ETFs dividend potential is not as easy to determine as the potential of each within its domain. However, thanks to their diversification and distribution yield, the three ETFs might be considered slightly better buys than most average dividend stocks.