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These 3 ETFs Can Generate Income Regardless Of Market Conditions

Published 26/05/2022, 07:39

Fears of a possible US recession have been growing among Wall Street’s analysts, helping push the S&P 500 index to the verge of an official bear market.

As investors accumulate growing losses in their portfolios, the pursuit of stocks that can provide positive returns intensifies. As a result, exchange-traded funds (ETFs) with high yields are in the limelight.

A recent Hartford Funds report highlights:

“From 1930–2021, dividend income’s contribution to the total return of the S&P 500 Index averaged 40%.”

Given the vital role of dividends in total portfolio returns, today’s article introduces three funds that could help generate a passive income stream amidst current market turbulence.

1. Global X MLP ETF

  • Current Price: $42.00
  • 52-week range: $32.29 - $43.45
  • Dividend yield: 7.35%
  • Expense ratio: 0.45% per year

Master limited partnerships (MLPs) are publicly traded infrastructure assets that do not pay taxes at the corporate level. But at least 90% of their income should come from qualifying sources, such as:

“exploration and production, transportation, and other activities involving any mineral or natural resource.”

As a result of their unique structure, MLPs typically distribute over 70% of their cash flow to investors who enjoy high dividend yields, often exceeding 7%.

Our first fund, the Global X MLP ETF (NYSE:MLPA), offers exposure to some of the largest midstream MLPs that focus on the transportation, storage, and processing various energy products. It was first listed in April 2012.

MLPA Weekly Chart

MLPA, which tracks the Solactive MLP Infrastructure Index, holds a portfolio of 20 stocks. With regard to sub-sectors, we have storage and transportation—petroleum (46.2%), gathering & processing (29.4%), and storage and natural gas (24.4%).

The leading 10 holdings account for more than two-thirds of $1.2 billion in net assets. Among them are Enterprise Products Partners (NYSE:EPD), Energy Transfer (NYSE:ET), Magellan Midstream Partners (NYSE:MMP), MPLX (NYSE:MPLX), and Western Midstream Partners (NYSE:WES).

MLPA has returned 19.5% year-to-date (YTD) and 8.5% over the past 52 weeks. Trailing price-to-earnings (P/E) and price-to-book (P/B) ratios are 11.53x and 2.70x.

2. First Trust BuyWrite Income ETF

  • Current Price: $21.23
  • 52-week range: $20.23 - $23.32
  • Dividend yield: 9.72%
  • Expense ratio: 0.85% per year

Next on today’s list is the First Trust BuyWrite Income ETF (NASDAQ:FTHI). This actively managed fund aims to mainly provide current income investing in US-listed stocks with an overlay of short calls on the S&P 500 index. Therefore, the fund generates premium income by writing (or selling) index options, a strategy we cover regularly. Capital appreciation is a secondary objective of the fund.

FTHI Weekly Chart

FTHI started trading in January 2014. The top 10 stocks account for about a quarter of $45 million in net assets.

In terms of sub-sectors, we see information technology (22.3%), healthcare (13.6%), energy (11.6%), consumer staples (10.6%), and consumer discretionary (8.5%), among others.

Leading holdings include tech giants Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and copper producer Southern Copper (NYSE:SCCO).

FTHI is down 3.4% since January and 4.3% over the past 12 months. By comparison, the S&P 500 index has lost 16.5% and 6% during these timeframes.

Covered call ETFs are gaining popularity in the current choppy investing scene and deserve your attention. The ETF makes monthly distributions. Trailing P/E and P/B ratios are 14.45x and 2.37x.

3. Schwab US REIT ETF

  • Current Price: $22.53
  • 52-week range: $21.43 - $26.54
  • Dividend yield: 0.62%
  • Expense ratio: 0.07% per year

Inflationary periods typically lead to increases in the prices of real assets and companies that invest in them, such as real estate investment trusts (REITs). According to a recent report by the National Association of Real Estate Investment Trusts (NAREIT):

“REITs provide reasonable protection against inflation because rents are not as sticky as other prices. Long term leases typically have inflation protection built-in, and shorter-term leases are based on current price levels.”

Therefore, our last fund is the Schwab US REIT ETF (NYSE:SCHH) which invests in US-based REITs, excluding mortgage REITs. The fund was first listed in January 2011.

SCHH Weekly Chart

SCHH currently holds 142 stocks, of which, the top 10 names comprise roughly 40% of $6.2 billion in net assets.

Among the leading shares, we see communications infrastructure REITs American Tower (NYSE:AMT) and Crown Castle International (NYSE:CCI); logistics-focused industrial REIT Prologis (NYSE:PLD); data center REIT Equinix (NASDAQ:EQIX); and Public Storage (NYSE:PSA), which owns self-storage facilities.

SCHH is down 14.4% YTD but has returned close to 0.8% over 12 months. Trailing P/E and P/B ratios stand at 38.20x and 3.04x. A further decline toward the $21 level would improve the margin of safety in this broad-based and low-cost ETF.


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