If you have $10,000 to spare, this High-Yield Dividend ETF could generate over $90 in monthly passive income for you, boasting a substantial return rate.
Enjoying passive income can lead to financial independence. If you can gather enough income from passive sources to accommodate your living costs, you won't need to work anymore to pay bills. That can alleviate a significant burden.
However, generating substantial passive income usually requires a substantial initial investment. Therefore, it's crucial to maximize the passive income your investments generate, as it can help you attain financial independence faster. One strategy is to invest in high-yielding assets, such as high-dividend stocks. The Global X SuperDividend ETF (SDIV -0.71%) simplifies this process.
A high-yield ETF
The Global X SuperDividend ETF focuses on stocks providing the highest dividend yields. It invests in 100 of the world's highest-yielding equity securities.
Over the past 12 months, the ETF's distribution yield has been astonishingly high at 10.9%. To contrast, the dividend yield on the S&P 500 is currently at only a 20-year low of 1.2%. A $10,000 investment in this fund would have generated $1,090 in passive income over the past year, compared to approximately $120 for a similar investment in an S&P 500 index fund.
This ETF distributes income every month, allowing investors to roughly collect $90 every 30 days or so. This frequency is noteworthy since most expenses are due monthly. Thus, the ETF can help investors align their income with their monthly expenses.
Expanding beyond borders
The fund provides a diversified global exposure to high-yielding dividend stocks. Currently, approximately one-third of its holdings are U.S.-listed stocks, followed by Hong Kong (15%) and Britain (8%). This global exposure adds diversification and reduces interest rate risk.
The fund also provides diversification across various sectors. Currently, it allocates the highest weighting to energy (24.1%), financial services (20.9%), materials (19.4%), and real estate investment trusts, or REITs (14.3%). Some of its top holdings include:
- Kinetic Holdings (KNTK -1.03%): The fund has a 1.6% allocation to this U.S. pipeline company. It currently has a 5.1% dividend yield. Kinetic Holdings recently boosted its already high-yielding dividend by 4%, driven by acquisitions and growth initiatives. The company plans to continue increasing its high-yield dividend as it expands its midstream network.
- Gladstone Commercial(GOOD 0.57%): The ETF has a 1.3% allocation to this U.S.-listed diversified REIT**. Gladstone pays a monthly dividend that currently yields 7%. The company primarily owns office and industrial properties. It has been focusing on acquiring industrial real estate due to challenges in the office sector, which forced the REIT to reduce its dividend at the end of 2022.
- Brandywine Realty Trust(BDN -3.22%): The fund has a 1.3% allocation to this U.S.-listed office REIT**. The REIT has a 10.8% dividend yield, even after a dividend cut due to headwinds in the office sector in late 2022. Brandywine has been targeting opportunities in high-value markets, like Austin, while selling off non-core properties.
The high yield often comes with higher risk
High-dividend stocks promise the potential for a substantial income stream. However, their high dividend yields often reflect associated risks. These companies may reduce their dividends in the event of financial difficulties. This phenomenon has affected Gladstone Commercial and Brandywine Realty in recent years, as headwinds facing their property portfolios forced them to cut their dividends.
As a result, investors in the Global X SuperDividend ETF must consider the associated risks. The portfolio's diversification reduces some risk, but it primarily holds high-risk dividend stocks. If a severe recession occurs, these companies are likely to be among the first to cut their dividends, which could impact the fund's distributions.
Investing in high-yielding assets like the Global X SuperDividend ETF can significantly boost your passive income. For instance, a $10,000 investment in this fund could generate $1,090 in passive income over a year, whereas the same investment in an S&P 500 index fund might only yield around $120. However, it's important to note that high-dividend stocks often come with higher risk, as these companies may reduce their dividends during financial difficulties.
