These 3 Dividend ETFs Pay Monthly, But Also Have Big Upside Potential

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Creating passive income streams can take many forms. Investors can choose from a plethora of stocks, bonds, alternative assets (such as real estate) and other less-traditional options (including crypto, etc.) which can provide yield. Growing one’s asset value over time is great, but having something to show for this growth over time is also very valuable. For many of the smartest and most conservative investors out there (such as Warren Buffett), there’s a trend many will notice in dividend stocks and other income-producing assets often making up a larger share of their portfolios than the industry average.

Investors such as Buffett have also consistently invested in assets such as preferred stock, which allow for even greater yield and capital appreciation upside over the long-term.

However, I thought it would be interesting to look at a few top ETFs paying investors monthly, for those looking for very consistent income in retirement.

Here are a few top exchange traded fund (ETF) options for investors looking to create a meaningful passive income stream, while retaining the upside potential equities can provide. Indeed, over the long-term, investing in stocks has tended to provide a higher return that bonds and other fixed income assets, so these are the ETFs I’m looking at right now as a potential fit for my own portfolio. 

iShares Preferred and Income Securities ETF (PFF)

Let’s kick this one off with a top ETF aimed at investors looking for a portfolio that includes some exposure to preferred stock, but also a broad array of income-producing securities. 

The iShares Preferred and Income Securities ETF (PFF) is a top option for yield-seeking investors. That’s because this particular ETF provides investors with a hefty dividend yield of 6.5%, which is at least partially offset by its expense ratio of 0.45%. Now, normally I’d say such a high expense ratio would make such an ETF a non-starter. But investors will notice that with these three picks on my list, the expense ratios are higher across the board. 

Some of that comes from the back-end processes that make monthly dividends possible. That’s the same for each of these funds.

What makes the iShares Preferred and Income Securities ETF different is this fund focuses on matching the performance and yield of the ICE Exchange-Listed Preferred & Hybrid Securities Index. This is an index of some of the best-quality market-cap-weighted preferred stocks, meaning investors get the kind of quality (and higher yields) many are looking for in this era of inflation.

By investing in the quality of companies within this portfolio, investors can maintain strong liquidity without having to take on excess risk. That’s the sort of profile I’m looking for right now, and given this ETF’s history of raising its distribution by 1-2% per year, this is a yield I think is worth locking in right now. 

SPDR Dow Jones Industrial Average ETF Trust (DIA)

Next on this list of top ETFs to consider is one with an expense ratio that’s much closer to my wheelhouse, at around 0.16%. 

The SPDR Dow Jones Industrial Average ETF Trust (DIA) is among the most stable options for ETF investors looking for monthly income. This stability comes from the fact that the DIA ETF tracks the Dow Jones Index (as its name suggests), which consists of only the 30 largest blue chip companies in the U.S.

As such, this ETF provides a dividend yield 1.5%, which is much lower than what some investors may like to see. Now, this yield is still higher than what most index ETFs will offer – and that’s important. Those looking for a higher-income way to gain exposure to the Dow have a solid pick in this particular ETF. 

Given the blue-chip nature of this fund’s holdings, those prioritizing capital preservation and stable and growing income can’t go wrong owning this name. It’s a top pick of mine for sure, and this is one I’m considering adding in short order. 

Invesco Preferred ETF (PGX)

Yet another ETF focused on providing investors with access to preferred securities, the Invesco Preferred ETF (PGX) is just that – a portfolio of investment-grade U.S. preferred securities. This ETF’s portfolio has historically displayed lower correlation to broader equity markets, providing ballast during times of uncertainty. So, for those who are uncertain about what tomorrow brings, this ETF’s 5.9% dividend yield certainly looks attractive.

Now, this yield does come with an expense ratio right around 0.5%, so there’s a cost to acquiring a position in this ETF up front. But I think the outsized yield these preferred securities provide, as well as a long track record of dividend growth, position investors well for a future which may require much higher passive income to live comfortably. 

With more than $5 billion in assets under management, and stable growth in the past, I think this is a top option that’s overlooked right now. If interest rates do come down, this ETF’s core holdings could see a significant increase in value. That’s something every investor should chew on. 

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