Thanks to low bond rates and a seemingly endless parade of QE,
investors have pushed to equities for yield. Yet many stocks
haven't exactly boosted current income that much, as a broad
investment in the S&P 500 currently pays out an annual yield
of just about 2.0%.
In order to seek higher levels of income, many investors have
looked to MLPs and traditional higher yield segments in order to
achieve a higher income level. Usually, this leads investors to
stocks in segments like utilities, telecoms, and real estate
which are ever popular choices for those seeking market-beating
yields.
While taking an individual security approach to this space
could be a great way to achieve a higher level of income, an ETF
technique could be another way to go. This strategy ensures
diversification across a market segment so that if one security
flounders, the overall portfolio return isn't too negatively
impacted (read
11 Great Dividend ETFs
).
For investors seeking to apply this to their portfolio, we
have highlighted three sector
ETFs
below which can provide investors with a yield easily above what
we are seeing in the broad S&P 500. These funds could also be
considered lower risk securities at this time as well as
potential ways for investors to round out their portfolio during
these uncertain market conditions:
Vanguard Telecom Services ETF (
VOX
)
Telecoms are usually a top pick for yield due to their
oligopolistic market and the relatively small growth level that
is left for firms in this area. Due to this, many just focus on
maintenance and service, leaving plenty of cash to be paid out on
a regular basis to income-hungry investors.
A top yield choice in this corner of the market is Vanguard's
ultra low cost VOX. The ETF charges just 19 basis points a year
in fees and has a yield approaching 3.3% in 30-Day SEC terms.
Investors should note, however, the fund is extremely focused
on
VZ
and
T
as these two account for over 40% of assets combined. Beyond
these two giants, there are about 33 other stocks in the basket
with many coming in the mid cap and micro cap spaces.
iShares FTSE NAREIT Real Estate 50 ETF (
FTY
)
Real estate, and specifically the REIT industry, is usually
considered a top destination for yield. That is because this
segment, in order to avoid double taxation, is obligated to pay
out at least 90% of income to shareholders, often making them top
dividend payers (see
Three Small Cap ETFs with Impressive Yields
).
While there are a number of decent yielders in the real estate
space, an interesting and relatively concentrated choice could be
FTY. The product charges investors 48 basis points a year in
fees, has average volume, and pays out roughly 3.55% in 30-Day
SEC terms.
Despite the fact that the fund holds just over 50 stocks in
its basket, it does an admirable job of dividing up assets as
Simon Property (
SPG
)
is the only stock to receive more than 7% of assets at 10.9%.
Exposure is also well spread around the various REIT segments, as
retail, residential, office/industrial, and health, all make up
at least 13% of the fund each.
Utilities Select Sector SPDR (
XLU
)
Much like telecoms, utilities operate in a low competition
segment, although theirs arguably has even less competition than
what investors see in the telecom market. Due to this and their
low growth prospects, utilities have also become a top yield
destination for many investors looking for extreme levels of
stability.
There are a few solid choices in the utility ETF space but one
of the biggest and most popular is XLU. This fund, which charges
just 18 basis points a year in fees, has over $5.7 billion in AUM
and nearly 6.5 million shares a day in volume, along with a
robust yield of 3.86% in 30-Day SEC terms (read
Three Overlooked High Yield ETFs
).
The ETF holds about 33 stocks in its basket and it is focused
in on electric utilities for most of its exposure. Still, assets
are well dispersed as five stocks make up more than 6% of the
fund but no one company makes up more than 9.5% of assets,
suggesting a relatively well spread out profile for this ETF.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
.
Click to get this free report >>
ISHARS-FN RE50 (FTY): ETF Research Reports
SIMON PROPERTY (SPG): Free Stock Analysis
Report
AT&T INC (T): Free Stock Analysis Report
VIPERS-TELE SVC (VOX): ETF Research Reports
VERIZON COMM (VZ): Free Stock Analysis Report
SPDR-UTIL SELS (XLU): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment
Research
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report