Best Income ETFs to Buy in 2024

Best Income ETFs to Buy in 2024
Best Income ETFs to Buy in 2024

Best Income ETFs to Buy in 2024

Income ETFs are exchange-traded funds that focus on generating regular income for investors, either through dividends, interest, or other distributions. Income ETFs can be a good option for investors who are looking for passive income, lower risk, and diversification in their portfolios. Income ETFs can also help investors cope with inflation, as some of them can adjust their payouts based on the changes in the consumer price index.

However, not all income ETFs are created equal. Some of them may have higher fees, lower yields, or higher volatility than others. Therefore, investors should do their research and compare the performance, costs, and risks of different income ETFs before investing in them.

In this article, we will present eight of the best income ETFs to buy in 2024, based on their historical returns, current yields, expense ratios, and Morningstar ratings. We will also provide some tips and resources on how to find and evaluate income ETFs.

What are the Benefits of Income ETFs?

Income ETFs have several benefits for investors, such as:

  • Regular income: Income ETFs provide investors with regular income, either monthly, quarterly, or annually, depending on the fund. This income can help investors meet their living expenses, supplement their retirement income, or reinvest in other assets.
  • Lower risk: Income ETFs tend to have lower risk than growth-oriented ETFs, as they invest in more stable and mature companies or securities that pay dividends or interest. Income ETFs also have lower volatility, as they are less affected by the fluctuations in the market prices of their underlying assets.
  • Diversification: Income ETFs offer diversification for investors, as they invest in a variety of income-generating assets, such as stocks, bonds, real estate, commodities, etc. This diversification can help reduce the overall risk and enhance the returns of a portfolio.
  • Inflation protection: Some income ETFs can protect investors from inflation, as they can adjust their payouts based on the changes in the consumer price index. For example, some bond ETFs invest in inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS), which increase their principal and interest payments in line with inflation. Some dividend ETFs invest in companies that have a history of raising their dividends over time, which can also help investors keep up with inflation.

How to Choose an Income ETF?

Choosing an income ETF can be challenging, as there are many factors to consider, such as:

  • Yield: The yield is the annualized income that an ETF pays to its investors, divided by its current price. The yield can indicate how much income an investor can expect to receive from an ETF, but it can also vary depending on the market conditions and the fund’s performance. A higher yield may be attractive, but it may also imply a higher risk or a lower growth potential. Therefore, investors should not rely solely on the yield, but also look at other aspects of an ETF, such as its total return, dividend growth, payout ratio, etc.
  • Total return: The total return is the combination of the income and the capital appreciation that an ETF provides to its investors over a period of time. The total return can indicate how well an ETF has performed in the past, and how much wealth it has generated for its investors. A higher total return may be desirable, but it may also reflect a higher volatility or a lower sustainability. Therefore, investors should not chase after the highest total return, but also consider the consistency, stability, and quality of an ETF’s performance.
  • Expense ratio: The expense ratio is the annual fee that an ETF charges to its investors, expressed as a percentage of its assets. The expense ratio can indicate how much an ETF costs to operate and manage, and how much it erodes the returns of its investors. A lower expense ratio may be preferable, as it means that more of the income and capital gains of an ETF are passed on to its investors. However, investors should not compromise on the quality or the suitability of an ETF for the sake of a lower expense ratio, as some ETFs may have higher fees but also higher returns or lower risks.
  • Morningstar rating: The Morningstar rating is a measure of an ETF’s risk-adjusted performance, relative to its peers in the same category, over a period of three, five, or 10 years. The Morningstar rating ranges from one to five stars, with five stars being the best and one star being the worst. The Morningstar rating can indicate how well an ETF has performed in the past, taking into account its risk, return, and costs, compared to other ETFs in the same category. A higher Morningstar rating may be favorable, but it may also be based on a limited or outdated data, and it may not reflect the future performance or the suitability of an ETF for a particular investor. Therefore, investors should not rely solely on the Morningstar rating, but also do their own research and analysis of an ETF.
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Best Income ETFs to Buy in 2024

Based on the criteria mentioned above, here are the best income ETFs to buy in 2024, along with their key features and statistics:

  • Vanguard High Dividend Yield ETF (VYM): This ETF tracks the performance of the FTSE High Dividend Yield Index, which consists of US companies that pay above-average dividends. The ETF has a low expense ratio of 0.06%, a high yield of 3.18%, and a five-star Morningstar rating. The ETF has a total return of 14.63% over the past year, and 10.76% over the past five years. The ETF’s top holdings include JPMorgan Chase, Johnson & Johnson, and Procter & Gamble.
  • Schwab US Dividend Equity ETF (SCHD): This ETF tracks the performance of the Dow Jones U.S. Dividend 100 Index, which consists of US companies that have a history of consistently paying and increasing their dividends. The ETF has a low expense ratio of 0.06%, a high yield of 2.94%, and a five-star Morningstar rating. The ETF has a total return of 16.01% over the past year, and 12.32% over the past five years. The ETF’s top holdings include Home Depot, Pfizer, and Exxon Mobil.
  • iShares Core High Dividend ETF (HDV): This ETF tracks the performance of the Morningstar Dividend Yield Focus Index, which consists of US companies that pay high dividends and have strong financial health. The ETF has a low expense ratio of 0.08%, a high yield of 3.37%, and a five-star Morningstar rating. The ETF has a total return of 11.81% over the past year, and 9.66% over the past five years. The ETF’s top holdings include Chevron, Verizon, and Merck.
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SPDR Portfolio S&P 500 High Dividend ETF (SPYD): This ETF tracks the performance of the S&P 500 High Dividend Index, which consists of the 80 highest dividend yielding stocks in the S&P 500 Index. The ETF has a low expense ratio of 0.07%, a high yield of 4.23%, and a four-star Morningstar rating. The ETF has a total return of 22.35% over the past year, and 10.83% over the past five years. The ETF’s top holdings include AT&T, Exxon Mobil, and Chevron.

  • Vanguard Real Estate ETF (VNQ): This ETF tracks the performance of the MSCI US Investable Market Real Estate 25/50 Index, which consists of US companies that own or operate real estate properties, such as residential, commercial, industrial, or retail. The ETF has a low expense ratio of 0.12%, a high yield of 3.05%, and a four-star Morningstar rating. The ETF has a total return of 29.85% over the past year, and 9.01% over the past five years. The ETF’s top holdings include American Tower, Prologis, and Equinix.
  • iShares TIPS Bond ETF (TIP): This ETF tracks the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index, which consists of US Treasury bonds that adjust their principal and interest payments in line with inflation. The ETF has a low expense ratio of 0.19%, a low yield of 1.32%, and a four-star Morningstar rating. The ETF has a total return of 5.36% over the past year, and 3.69% over the past five years. The ETF’s top holdings include US Treasury Inflation-Protected Securities with various maturities and coupons.
  • Invesco Preferred ETF (PGX): This ETF tracks the performance of the ICE BofAML Core Plus Fixed Rate Preferred Securities Index, which consists of preferred securities issued by US or foreign companies, such as banks, utilities, or REITs. Preferred securities are hybrid securities that have characteristics of both stocks and bonds, and that pay fixed or variable dividends. The ETF has a low expense ratio of 0.52%, a high yield of 4.84%, and a three-star Morningstar rating. The ETF has a total return of 8.67% over the past year, and 5.49% over the past five years. The ETF’s top holdings include preferred shares of Wells Fargo, Bank of America, and JPMorgan Chase.
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These are some of the best income ETFs to buy in 2024, but there are many others as well. You can also use online tools, such as ETF.com, ETFdb.com, or Morningstar, to search, compare, and analyze different income ETFs based on your preferences and goals.

Conclusion

Income ETFs are exchange-traded funds that focus on generating regular income for investors, either through dividends, interest, or other distributions. Income ETFs can be a good option for investors who are looking for passive income, lower risk, and diversification in their portfolios. Income ETFs can also help investors cope with inflation, as some of them can adjust their payouts based on the changes in the consumer price index. However, not all income ETFs are created equal. Some of them may have higher fees, lower yields, or higher volatility than others. Therefore, investors should do their research and compare the performance, costs, and risks of different income ETFs before investing in them. We hope that this article has given you some useful information and tips on how to find and buy the best income ETFs in 2024.

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