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If you’re looking for monthly dividends with high yields, there are more ways to derive that income without chasing significant risk. The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), Colterpoint Net Lease Real Estate ET (NYSEARCA:NETL), and VanEck Preferred Securities ex Financials ETF (NYSEARCA:PFXF) can get you $1,000 monthly on an investment of ~$230,000.
The three ETFs have an average yield of 5.19%. This works best if you are someone who already owns a home and needs a little extra to get by. It also works if you’re already sitting on significant amounts of cash and you’re not comfortable dipping your toes into risky equities or covered call ETFs.
Better yet, the ETFs below also come with some upside on top. Let’s take a look.
iShares 20+ Year Treasury Bond ETF (TLT)
TLT buys and holds U.S. Treasuries, a 20-year-plus treasury. It collects the coupons and passes them to you monthly for a 0.15% expense ratio. TLT is boring, and I’d argue very safe. It can swing somewhat in both directions depending on interest rate hikes and cuts, but the underlying asset is rock-solid as Treasuries are backed by the U.S. government.
The most special characteristic of TLT is that it tends to soar significantly during recessions, as downturns often invite interest rate cuts. Since interest rates go down, the long-term (and high-yield) Treasuries owned by TLT become much more valuable. This is what caused TLT to rise from the $90s to over $122 in 2008. TLT is currently trading around $86, and I don’t see significant downside risk.
I either see a rapid gain from here if there’s a recession, or a slow climb upwards as interest rate cuts eventually make these long-term Treasuries more valuable. Analysts do expect that interest rates may be raised a little this year if inflation comes in higher, but that’s unlikely to happen. And even if it does, it won’t have a big impact on TLT.
All in all, you get a 4.5% yield and ~40% upside potential in the next 24 months. If there’s a deep recession, it could even eclipse its 2020 peak of over $170.
Colterpoint Net Lease Real Estate ETF (NETL)
The Colterpoint Net Lease Real Estate ETF holds REITs that follow the NET lease business model. A “net lease” is an arrangement that requires the tenant to pay all or a portion of the taxes, fees, and maintenance costs for a property in addition to rent. In the most common flavor, the triple net lease, the tenant pays all three, which means the landlord collects rent and essentially nothing else touches the income statement.
Thus, these net lease REITs are the closest thing public real estate has to a bond. They sign a 15 or 20-year lease with a creditworthy tenant like Walmart (NASDAQ:WMT | WMT Price Prediction), FedEx (NYSE:FDX), or a regional grocer, collect predictable rent with contractual escalators built in, and then distribute the cash.
The entire real estate sector has had a lot of fear baked in due to rising interest rates, but the worst-case scenario never ended up materializing. Real estate prices are nowhere near balloon levels, and these companies have already applied lessons from 2008 to prevent a repeat.
I expect NETL to eventually make a recovery to its peak and deliver 25-30% upside. In the meantime, you can cash the 4.69% yield. The expense ratio is on the higher side at 0.60%, or $60 per $10,000.
VanEck Preferred Securities ex Financials ETF (PFXF)
Preferred stocks sit between normal stocks and bonds, and companies issue them not to dilute their common stock. These stocks are prioritized in the unlikely case a company falls. Most importantly, these preferreds come with fat yields to woo investors who would’ve chosen Treasuries instead.
PFXF buys a basket of these preferreds, but it does so with a very smart overlay. The PFXF ETF excludes preferreds from financial companies, and I believe this makes it a lot safer in the current environment. Financial companies are the most prolific issuers of these stocks. These businesses tumble first in a recession, and they’re massively lending to risky AI startups.
PFXF now gets you a 6.35% dividend yield with an expense ratio of 0.40%. It is up 16.5% in the past year already, independent of those dividends.