High dividends are synonymous with high yield. That’s why investors with current income as their financial objective are always on the lookout for high-dividend exchange-traded funds, or ETFs. High-dividend ETFs invest in stocks with above-average dividends. In addition, some will use creative investment strategies such as covered-call writing to further enhance yield. High-dividend ETFs can be a great choice for income-oriented investors.

Like most other ETFs, high-dividend ETFs offer excellent diversification and professional management. Many high-dividend ETFs have diversified portfolios that include stocks from several different commercial sectors like real estate, communications technology and consumer goods. Others will specialize in certain classes of stock that come from one or only a few sectors. The goal of these funds is always the same: a reliable stream of high-quality dividend income.

Here are seven high-dividend ETFs you should consider adding to your income-generating portfolio.

VanEck BDC Income ETF (BIZD)

A business development company, or BDC, is a highly specialized company that invests in fast-growing private companies. A BDC shares characteristics with investment funds and real estate investment trusts, or REITs, but it is, nonetheless, a unique investment. To avoid corporate double taxation, a BDC must distribute at least 90% of its taxable income to shareholders in the form of regular dividends. This makes them excellent income stocks.

BIZD is an index ETF based on the MVIS U.S. BDC Index, which is made up of 26 publicly traded, high-yielding BDCs. The fund seeks to replicate the performance of the underlying index minus fees and expenses.

BIZD holds a variety of BDCs, with top holdings including Ares Capital Corp. (ARCC), FS KKR Capital Corp. (FSK) and Prospect Capital Corp. (PSEC).

Assets under management: $919 million
12-month yield: 10.8%

PGIM Floating Rate Income ETF (PFRL)

PFRL is an ETF that invests in securities called floating-rate bank loans.

Bank loans are commercial loans that national and regional banks make their customers – usually corporations and small businesses – which are then collateralized and packaged into debt securities to be bought by institutional investors. Floating-rate loans like the ones PFRL owns don’t have fixed interest rates. The rate is adjustable based on a predetermined rate benchmark such as the three-month LIBOR. Floating-rate loans tend to be less sensitive to changes in the interest rate market than their fixed counterparts.

PFRL enhances its income by investing up to 25% of its assets in loans made by borrowers headquartered in foreign domiciles. Foreign entities must pay higher rates to borrow in the U.S., and PFRL passes those higher yields through to its shareholders.

Assets under management: $49.5 million
12-month yield: 9.7%

JP Morgan Nasdaq Equity Premium Income ETF (JEPQ)

JEPQ uses the Nasdaq-100 index as its benchmark, but it’s not a Nasdaq-100 index fund like Invesco QQQ Trust (QQQ). JEPQ selects the stocks it buys from within that index, but, as an actively managed fund, it has much more flexibility than a strict index ETF.

JEPQ creates and manages a portfolio of Nasdaq-100 stocks and exchange-traded notes. To generate exceptional income for shareholders, JPEQ then strategically sells covered calls against securities it holds which all have direct exposure to the index.

The fund’s main objective is high, long-term current income, but investors can expect some capital appreciation as well, especially when the Nasdaq 100 is in a bull market.

Assets under management: $9.6 billion
12-month yield: 9.7%

iShares Select Dividend ETF (DVYE)

DVYE is an excellent choice for investors seeking income from an ETF that invests in U.S. companies with established histories of paying above-average dividends.

DVYE is an index ETF that mirrors the Dow Jones U.S. Select Dividend Index. The index is composed of 99 domestic stocks with a wide range of market capitalizations. Every stock in the portfolio has at least a five-year history of paying regular dividends. At the end of January 2023, the fund reported a three-year cumulative total return of 32.4%.

DVYE has a daily volume of more than 319,000 shares, which ensures efficient pricing and excellent liquidity.

Assets under management: $670 million
12-month yield: 9.3%

iShares 20+ Year Treasury Bond Buywrite Strategy ETF (TLTW)

TLTW has a strategy so unique it may be one of a kind. Technically, TLTW is an index fund, but it’s based on an index that is not widely used and was designed specifically for this ETF and other investors who want to duplicate or track the same strategy.

TLTW mirrors an index called the Cboe TLT 2% OTM Buywrite Index. The index buys and holds the iShares 20+ Treasury Bond ETF (TLT) and then sells a large number of one-month covered calls against it. TLTW uses a very sophisticated and highly customized long-term Treasury options overlay strategy. Essentially, TLTW is a twin of TLT but with a high volume of short-term covered calls.

If you like the relative security of owning U.S. Treasury bonds but want incredible dividend income, TLTW may be the perfect ETF for you. But be aware: Unlike other Treasury bond funds that thrive when rates fall, TLTW does better in a rising-rate environment.

Assets under management: $889 million
12-month yield: 19.9%

Global X MLP ETF (MLPA)

Master limited partnerships, or MLPs, are excellent income investments for those who understand how they work. MLPs are publicly traded partnerships that trade on major exchanges just like stocks. Because they avoid corporate double taxation and distribute a large part of their earnings, they provide a consistently high dividend income.

MLPA is based on the Solactive MLP Infrastructure Index. The fund holds 20 individual MLPs that specialize in the midstream – meaning transportation and storage – sector of the hydrocarbon energy market. This is of interest because midstream companies tend to be less sensitive to price fluctuations in the oil and natural gas markets.

Global X is not known as a low-cost asset manager, but the 0.45% expense ratio associated with MLPA is quite reasonable.

Assets under management: $1.5 billion
12-month yield: 7.2%

Invesco KBW High Dividend Yield Financial ETF (KBWD)

KBWD gives investors an exceptionally high dividend yield and diversified exposure to the lucrative financial services sector. KBWD is based on the KBW NASDAQ Financial Sector Dividend Yield Index.

The index is made up of financial stocks that have very competitive dividend yields. What makes the index unique and accounts for the exceptional yield of KBWD is that it is not cap-weighted or equal-weighted, it’s dividend yield-weighted. This means that KBWD invests more of its assets in higher-yielding stocks and less in the lower-yielding ones.

About 88% of the ETF is in small-cap value stocks. There are no large-cap growth companies in the fund. The fund’s largest holding is Armour Residential REIT Inc. (ARR).

Assets under management: $367 billion
12-month yield: 12%

https://money.usnews.com/investing/articles/best-high-dividend-etfs