Harry Domash, Online Investing | Given market’s mood, ‘steady’ might be smart play

Continuing the theme from my last column, given current market conditions, this might be a good time to look for steady monthly income rather than shooting for the moon with volatile startups.

Only this week, I’m going to focus on higher dividend paying exchange-traded funds (ETFs). Specifically, funds paying monthly dividends equating to 7.6% to 11.2% yields. Further, unlike traditional exchange-traded funds that track predefined indices, all four exchange-traded funds are actively managed, meaning that fund managers can pick holdings based on their assessment of current market conditions. I’ll give you the details in a minute, but first a word about exchange-traded fund dividend yields.

ETF dividend yields

Unlike most dividend paying mutual funds and common stocks, many exchange-traded funds don’t pay fixed monthly dividends. Instead their payouts vary from month to month. Consequently, it’s best to compute exchange-traded fund dividend yields using the last 12 month’s total dividend payouts. For example, the yield would be 10% for a fund that paid dividends totaling $1 per share over the past 12 months and recently traded at $10 per share. With that out of the way, here’s the list.

Four ETFs to consider

• Global X Russell 2000 Covered Call (ticker RYLD): Employs a “covered call” strategy involving holding stocks making up the Russell 2000 Index and then selling covered call options on its holdings to generate cash to pay its high dividends. How high? For the past 12 months, the fund has paid monthly dividends equating to an 11.4% annual yield. An April 2019 IPO, the fund has returned 37% (dividends plus capital appreciation) for the past 12 months and averaged 13% annually since its IPO.

• Saba Closed-End Funds ETF (CEFS): Closed-End Funds (CEFs) are similar to ETFs except that they don’t generally trade at their per-share net asset values (NAV). Instead, they usually trade above (premium) or below (discount) to their NAVs. For its portfolio, Saba selects CEFs trading at discounts that also meet other proprietary requirements. Its trailing 12-month dividend yield is 7.9%. Saba has returned 24% over the past 12-months and averaged 11% annually for the past three years.

• Virtus InfraCap U.S. Preferred Stock ETF (PFFA): Although they trade the same as common stocks, preferreds are debt instruments, similar to bonds. Companies issue preferreds to raise cash, and investors buy them for the steady dividends. Virtus employs a variety of strategies to pick preferreds with the highest total return potential. Its dividend yield is 7.6%. Virtus has returned 41% for the past 12 months and averaged 9.3% annually for three years.

• Nationwide Risk-Managed Income ETF (NUSI): Similar in concept to Global X, this fund uses an options trading strategy to generate cash to pay dividends. However, in this case, Nationwide trades options on stocks making up the NASDAQ 100 Index. Dividend yield is 7.6%. Nationwide, a 12/19 IPO, has returned 18% for the past 12 months.

Those are my ideas. Return data is from Morningstar. As you’ve heard, past performance doesn’t predict the future. Due your own due diligence, the more you know about your investments, the better your results.

Harry Domash of Aptos publishes the Winning Investing and the Dividend Detective websites. Contact him at www.winninginvesting.com or Santa Cruz Sentinel, 324 Encinal St., Santa Cruz, CA 95060. To see previous Domash columns, visit santacruzsentinel.com/topic/Harry_Domash.