3 ETFs Pairing Market-Beating Returns With High Dividend Yields

Key Points

• Three ETFs combining strong returns with attractive dividends may offer investors the best of both worlds.
• However, funds like WLDR, BOAT, and SEMY may also carry unusually high levels of risk.
• These funds capitalize on red-hot corners of the market including global maritime shipping and semiconductors.

Passive income is a major draw for investors, and exchange-traded funds (ETFs) with a dividend focus are a great way to simplify the process. Many of these funds sacrifice returns for stability of distributions, however. For investors seeking the best of both worlds—an attractive dividend yield alongside returns that beat the market—some ETFs offer both.

Of course, there tend to be trade-offs in these cases. In the case of the funds below and others like them, investors should watch out for overall fees and risk levels. Many of the funds with the highest dividend yields will also carry unusually significant risk, making them suitable only for investors with a high tolerance.

Strong All-Around Fund for Income and Returns, But Minimal Investor Attention

The Affinity World Leaders Equity ETF BATS: WLDR tracks an index of U.S. and international companies with a strong global footprint as measured by market capitalization. To be included in the index and the ETF, firms must also demonstrate earnings quality, improving fundamentals, share price momentum, and attractive valuations.

In all, then, the well over 100 stocks making up WLDR's basket represent some of the largest and most successful companies in the world. Tech names are to be found throughout, of course, including major players like Dell Technologies Inc. NYSE: DELL and Micron Technology Inc. NASDAQ: MU. However, WLDR also holds companies across a host of other industries and sectors, ranging from consumer staples to communications to health care and more. The largest handful of positions represent 3% or more of the portfolio each, but most stocks account for no more than about 1%.

WLDR shines as a dividend payer, offering a dividend yield of 8.86%. The fund combines that excellent passive income focus with a recent history of equally compelling performance, having returned about 30% year-to-date (YTD) as well. Although the expense ratio is moderately high at 0.67%, it may be surprising to investors that the combination of passive income and returns has not yielded broader interest in this fund: WLDR has assets under management (AUM) below $100 million and a low one-month average trading volume below 12,000, so liquidity may be an issue in some cases.

A Unique Play on the Global Shipping Industry Stands Out

With a similar profile in terms of AUM, trading volume, and cost, the SonicShares Global Shipping ETF NYSEARCA: BOAT also may appeal to investors willing to accept a fair degree of risk. As the name suggests, BOAT targets an index of global maritime shipping companies. These firms continue to play a critically important role in transporting goods of many different kinds around the world—for any investors in doubt, the outsized impact of the closure of the Strait of Hormuz in recent months should remove any apprehensions about the importance of global shipping.

As important as oil and gas shipping is, though, it is not all that global maritime transport represents. BOAT focuses on stocks of companies that transport a wide range of goods and raw materials, from consumer and industrial products to dry bulk, vehicles, and, yes, oil and gas as well. The fund holds more than 50 different positions, with about two-thirds of the portfolio representing mid-cap names. Due to the international nature of this industry, the fund invests in companies from all over the world.

BOAT pays a compelling dividend yield of about 6.40%, on top of YTD performance close to 30%. The low AUM and trading volume may be due to the niche nature of the industry, or perhaps to this ETF's relatively high expense ratio of 0.69%, but with dividend payouts and returns as high as they are, investors may be willing to look past the fee.

Weekly Distributions on a Semiconductor Play, But With a Caveat

The GraniteShares YieldBOOST Semiconductor ETF NASDAQ: SEMY stands out on this list as not only the only actively managed fund, but also the ETF with the highest expense ratio (1.07%).

In exchange, investors can expect weekly distributions generated by an options strategy on leveraged funds tracking an index of semiconductor stocks.

Given the use of options and leverage, this fund is also likely the highest-risk among the funds here. Though it has market-beating performance YTD, this ETF is not designed for long-term buy-and-hold strategies. Rather, the appeal is its sky-high distribution rate of approximately 95%. Still, investors should absolutely beware the dangers of the strategies employed here before buying in.