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Your typical savings account likely yields 0.5% or less, and maybe 4-5% if you have a high-yield account. Both of those accounts will fail to generate more than monthly ETFs like the USCF Midstream Energy Income Fund (NYSEARCA:UMI), Pacer Metaurus US Large Cap Div Multiplier 400 ETF (NYSEARCA:QDPL), and Pacer Metaurus US Large Cap Div Multiplier 400 ETF (NYSEARCA:QDPL).
The vast majority of financial advisors will tell you to keep the bare minimum in your savings account and invest elsewhere. Putting that money in a mix of growth and monthly dividend ETFs will almost always put you ahead. Unlike savings accounts, your capital appreciates when you actually invest your money.
For example, if you put $100k in a high-yield savings account, even if you reinvest every bit of your money, you’re going to be marginally richer due to inflation.
On the other hand, monthly dividend ETFs hold real businesses and will perform much better.
Why?
During inflation, your savings account just loses money or becomes less effective. Meanwhile, an actual business will raise prices, adapt, and grow with the rest of the economy. Increasing prices hit consumers the hardest for this exact reason. The following three ETFs give you exposure to these businesses with solid cash flow. And they will also give you a dividend yield at least 10x higher compared to those low-yield accounts.
USCF Midstream Energy Income Fund (UMI)
This ETF has outperformed both the S&P 500 and the Nasdaq-100 in the past five years with a 110% gain, and that’s even before you include dividend reinvestments. The midstream sector has been making a killing even before oil prices spiked, and it can continue to surge due to multiple overlapping tailwinds.
Midstream companies make money when oil flows through their pipelines, so oil prices don’t dictate their financials much. That said, the boom in oil exports and the constant release and replenishment of the strategic petroleum reserve have kept profits high.
You shouldn’t expect a monthly dividend ETF to always outperform the leading indexes. However, you can expect this ETF to beat most other monthly dividend ETFs. And UMI will almost certainly beat a savings account long-term.
UMI comes with a 5.86% dividend yield. The expense ratio is 0.69%, but the net yield is still solid.
Pacer Metaurus US Large Cap Div Multiplier 400 ETF (QDPL)
QDPL comes with 4.92% dividend yield that it pays monthly. It is designed to provide cash distributions equal to 400% of the S&P 500 ordinary yield. You may wonder whether or not this is just another covered-call ETF with a worse yield, but the answer is no.
QDPL aims for uncapped upside potential, unlike ETFs that use covered calls. So how does it amplify the S&P 500’s dividends?
QDPL holds ~90% of its holdings in the S&P 500. The rest is what it uses to generate that extra yield by holding collateral (like U.S. Treasury Bills) to support long positions in S&P 500 dividend futures.
The expense ratio here is 0.60%, which isn’t that high for an ETF that gets you both a high yield and upcapped exposure to the S&P 500. If you are looking for an alternative to risky covered-call ETFs that struggle to recover after a downturn, this is it. And unlike a covered-call ETF, this one does not require you to keep reinvesting to compound your money. You can keep the yield and let it follow the S&P 500’s footsteps.
Invesco High Yield Equity Dividend Achievers ETF (PEY)
There’s nothing fancy going on with this ETF, and I’d buy it if you just want to buy and hold a basic passive dividend ETF with high yields and solid underlying holdings.
PEY holds 50 U.S. stocks that have a record of increasing their dividend payouts for at least a decade. These 50 dividend stocks collectively get you a 4.54% dividend yield, paid monthly. The expense ratio is 0.54%.
One nice-to-have attribute is that PEY has limited exposure to tech. If you want to diversify your portfolio beyond pure tech, PEY is a solid way to do that. Tech stocks constitute just 6.53% of the ETF.
One more thing I’ll add is that if you are willing to sacrifice on the yield being monthly, there are better bets out there. PEY has gained just 3% in the past five years when you take the dividend yield out. The Schwab US Dividend Equity ETF (NYSEARCA:SCHD | SCHD Price Prediction) has gained 23% in the past five years, though it yields 3.3% and pays quarterly.
SCHD’s lead does narrow when you take dividends into account, but it remains the gold standard if you don’t care about when your dividends are distributed.