Passive-income seekers typically prefer investing in robust stocks that provide stable—and preferably—growing dividends, which can also provide price appreciation in the long run. Given the current low interest rate environment, these dividend stocks might appeal to a large number of readers, as they can provide a big boost to income and growth portfolios.
Therefore, today we continue our previous discussion of dividend-paying exchange-traded funds (ETFs) and introduce two more funds with relatively high dividends.
1. ALPS Emerging Sector Dividend Dogs ETF
Current Price: $25.53
52-Week Range: $17.88 – $25.67
Dividend Yield: 5.17%
Expense Ratio: 0.60% per year
Our first fund comes from outside the US. The ALPS Emerging Sector Dividend Dogs ETF (NYSE:EDOG) invests in an equal-weighted basket of 50 large-cap emerging market stocks selected for their high dividend yields. The fund, which is rebalanced quarterly, started trading in March 2014, and has about $25.5 million under management. So it is a small fund.
EDOG tracks the returns of the S-Network Emerging Sector Dividend Dogs Index, which includes large-cap companies from emerging markets. The index chooses the five highest dividend-yielding securities in 10 of the 11 Global Industry Classification Standard (GICS®) sectors (excluding the real estate sector). We previously covered the 11 GICS sectors.
As far as sectors are concerned, information technology leads with 11.05%, followed by materials (10.30%), energy (10.27%) and utilities (10.13%). No single stock has a weighting of more than 3%, and the top 10 companies comprise around 24% of the fund.
Among the leading names in the ETF are the Thailand-based electronic equipment supplier, Delta Electronics (TW:2308), India-based natural resource company, Vedanta (NYSE:VEDL), Chinese Yanzhou Coal Mining (OTC:YZCAY), and several Brazil-based groups. Those include power generation company, Centrais Eletricas Brasileiras (NYSE:EBRb), petroleum products distributor, Petrobras Distribuidora (SA:BRDT3), and Banco Santander Brasil (NYSE:BSBR).
Year-to-date, the ETF has returned more than 12% and hit its record high in early June. We believe the fund could be on the radar of passive-income seekers who are also looking at emerging market shares. A potential decline towards $24 would improve the risk-return profile for long-term investors.
2. First Trust North American Energy Infrastructure Fund
Current Price: $25.26
52-Week Range: $18.43 – $25.33
Dividend Yield: 3.78%
Expense Ratio: 0.95% per year
Our next fund invests in publicly-traded master limited partnerships (MLPs). These businesses are typically involved in the exploration, production, processing, refining or transportation of natural resources, like oil, gas and renewable energy sources.
Oil and gas MLPs own different assets. The most common are midstream pipelines and downstream transportation infrastructure. A project by Elizabeth Arnason and Alexandra Cagan of Duke University highlights:
“Since 1981, Master Limited Partnerships (MLPs) have financed a significant share of United States oil and natural gas transport and processing infrastructure… [T]he MLP model has been a successful vehicle for aggregating capital and encouraging infrastructure investment.”
As an asset class, the MLP structure comes with various tax benefits. Therefore, in simple terms, MLPs typically have steady cash flows and are able to pay larger distributions (or dividends). In technical terms, MLP investors buy units of this partnership, rather than shares of stock, and are referred to as “unit holders.”
Our second ETF, the First Trust North American Energy Infrastructure Fund (NYSE:EMLP) primarily provides exposure to North American MLPs that mainly own or operate energy infrastructure and storage assets.
EMLP is an actively managed exchange-traded fund that currently has 56 holdings. It started trading in June 2012. As of Mar. 31, top sectors included electric power and transmission (44.46%), natural gas transmission (23.68%), petroleum product transmission (19.78%) and crude oil transmission (6.70%). The leading 10 holdings currently comprise more than 50% of net assets of about $2 billion.
Pipelines and storage terminals operator, Magellan Midstream Partners (NYSE:MMP); mid-stream energy services provider, Enterprise Products Partners (NYSE:EPD); Nextera Energy Partners (NYSE:NEP), which owns, operates and acquires contracted clean energy projects; Canada-based energy infrastructure company, TC Energy (NYSE:TRP); and energy company, Public Service Enterprise (NYSE:PEG), top the list of names in the fund.
So far in 2021, EMLP is up about 19.5% and hit a multi-year high in early June. Investors interested in passive-income should do further due diligence on EMLP with a view to buy the dips.