2 Monthly Dividend ETFs That Pay Investors Like Clockwork

Quick Read

Dividends and distributions are not the same thing. Many high-yield ETFs rely on options income or return of capital, so checking the actual composition of payouts matters. DTD offers broad, plain-vanilla dividend exposure. It tracks the entire U.S. dividend-paying market with a balanced sector mix and lower valuation than the S&P 500. SPHD draws from the S&P 500 but tilts toward income. It selects high-yield, low-volatility stocks, leading to more sector concentration, but historically lower beta and more attractive valuation. If you're focused on picking the right stocks and ETFs you may be missing the bigger picture: retirement income. That is exactly what The Definitive Guide to Retirement Income was created to solve, and it's free today. Read more here

A lot of income investors get tripped up on something basic: the difference between a dividend and a distribution. People use the terms interchangeably, but they are not the same thing.

If you're focused on picking the right stocks and ETFs you may be missing the bigger picture: retirement income. That is exactly what The Definitive Guide to Retirement Income was created to solve, and it's free today. Read more here

A dividend is a payment made by a company to its shareholders, typically out of its profits. A distribution, on the other hand, is a payout from an investment fund like an ETF, and the underlying sources can vary quite a bit. A distribution can include dividends, but it can also include ordinary income, short- or long-term capital gains, and even return of capital.

That distinction matters. There are plenty of ETFs today that advertise high “yields,” but those payouts are often driven by options strategies or other income-generating techniques. In many cases, the underlying holdings themselves don’t produce much in the way of dividends. Instead, investors are receiving a mix of income types, some of which are less tax efficient or less sustainable.

If you want a true dividend strategy, the better way to evaluate it is by looking at your Form 1099-DIV and checking how much of the distribution is actually classified as dividends, ideally qualified.

For investors who prefer a more traditional, plain-vanilla approach, the good news is those ETFs still exist. They tend to be lower cost, easier to understand, and less reliant on complex strategies.

The trade-off is that the yield is usually lower, but total return still matters more. With that in mind, here are two dividend-focused ETFs that pay monthly instead of quarterly.

Story Continues

Buy the Entire U.S. Dividend Market

The first option is the WisdomTree Total U.S. Dividend Fund (NYSEARCA: DTD). This ETF is among the most diversified dividend ETFs out there. It holds U.S.-listed companies that pay cash dividends and meet basic liquidity and market capitalization requirements.

Once a year in December, the index is rebalanced and weighted by the total cash dividends paid by each company. That’s an important distinction. It’s not weighted by dividend yield, but by total dollars of dividends paid. Larger, more established dividend payers naturally rise to the top.

In practice, this gives you a very broad portfolio. Think of it as the total U.S. equity market with non-dividend-paying companies removed.

That leads to a more balanced sector composition than what you might see in the S&P 500. Financials and technology are the largest sectors at roughly 18% and 16%, followed by healthcare at 12%, and both industrials and consumer staples around 9%.

Removing non-dividend payers also brings valuations down. The portfolio trades at about 20.61 times earnings, compared to roughly 25 times for the S&P 500. After a 0.28% expense ratio, DTD currently offers a 2.07% 30-day SEC yield.

High Dividends, Lower Volatility From the S&P 500

DTD is intentionally broad. It works well for investors who want to stay close to a total market approach while adding an income tilt.

If you’re willing to take on more concentration in exchange for higher yield, the Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA: SPHD) takes a different approach.

This ETF starts with the S&P 500, then selects 50 stocks with the highest yields and the lowest trailing 12-month volatility. From there, holdings are weighted by dividend yield, with constraints to prevent overconcentration. Each sector can include no more than 10 companies, each sector is capped at 25% of the portfolio, and individual stocks are capped at 3%.

The result is a more concentrated portfolio with noticeable sector tilts. Real estate is the largest allocation at about 19%, followed by consumer staples at 18%, and then energy, financials, and utilities each around 14%. Because of the high-yield screen, valuations are also lower at around 16.52 times earnings.

Historically, SPHD has also shown lower volatility than the broader market. According to Yahoo Finance, it has a five-year monthly beta of 0.58. After a 0.30% expense ratio, SPHD currently offers a 4.67% 30-day SEC yield.

Released: The Ultimate Guide To Retirement Income (sponsor)

Most investors spend years learning how to pick good stocks and funds. Far fewer have a clear plan for turning those investments into a reliable retirement paycheck. The truth is, the transition from “building wealth” to “living on wealth” is one of the most overlooked risks facing successful investors in their 50s, 60s and 70s.

That is exactly what The Definitive Guide to Retirement Income was created to solve. It’s a free guide that outlines the straightforward math and strategies you need to convert your investments to income. Learn more here.

View Comments