The Secret of Income Generating Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) are now a massively popular way of investing in the stock market and other financial markets. Their low annual charges and high liquidity mean that they are useful investments for amateur and professional investors alike.

The last decade was a terrible one for investors. Global stockmarkets in developed economies went nowhere. The FTSE 100 is lower now than it was 10 years ago! If you're investing for your retirement, that's a disaster!

However, many investors did OK in the last few years. While some got rich quickly by spotting opportunities to invest in gold or oil, others got rich slowly by following this sure fire way to build wealth...

Invest in financial assets that pay out dividends and interest payments!

Dividends can significantly boost investment returns, particularly if the dividends are then reinvested - compound interest.

Here are a few ETFs with above average dividend yields. Note that dividends do fluctuate and are not guaranteed. Do you own research before buying any stock, and if in doubt as to an investment's suitability for you then consult an independent financial advisor.

As far as high yielding ETFs are concerned, the most popular with UK investors is the iShares Corporate Bond ETF (London Stock Exchange ticker symbol: SLXX). This ETF contains a number of different corporate bonds, largely in the financial sector, but also large UK registered multinational companies such as Imperial Tobacco, Tesco and GlaxoSmithKline. The ETF pays out a quarterly dividend. The ETF has a very low Total Expense Ratio (TER) compared to corporate bond unit trusts, although there are dealing costs involved with buying and selling an ETF whereas many discount brokers and ISA providers refund most of the initial charge levied on corporate bond unit trusts.

As well as SLXX, there are also similar iShares corporate bond ETFs that contain US dollar and Euro denominated corporate bonds. Other ETF providers also have a range of income generating ETFs - the db-X trackers Global Select Dividend ETF is one such example. High yielding ETFs are also available to US investors - the Vanguard Dividend Appreciation ETF is listed on the New York Stock Exchange.

A number of ETFs have been designed specifically to produce high yields. The iShares FTSE UK Dividend Plus ETF (stock symbol: IUKD) contains holdings in some of the largest high yielding companies within the UK's FTSE 350 index. Dividends are paid on a quarterly basis. The ETF is also rebalanced to ensure that only the highest yielding companies with the best chance of maintaining their dividends are included.

There is also a version of this ETF which covers the Asia/Pacific region (IAPD) and the Eurozone (IDVY).

There are a number of ETFs that invest in commercial property. Commercial property receives rental payments which are then paid out as dividends. There is also the chance of significant capital growth if property values increase.

The iShares FTSE EPRA/NAREIT UK Property Fund (stock symbol: IUKP) is one of the most popular UK property ETFs. Similar ETFs are available for US and Asia/Pacific, although yields on these ETFs are generally lower. Note that the IUKP ETF contains holdings of shares in real estate companies, rather than directly holding commercial property within the ETF itself. ETF holdings include British Land, Land Securities and Great Portland Estates. Dividends are paid on a quarterly basis.

For overseas property, the iShares FTSE EPRA/NAREIT Asia Property Yield Fund (stock symbol IASP) is designed to invest in the higher yielding Asian property companies. Dividends are also paid on a quarterly basis.

Emerging market debt is a little known way to access great dividend yields. There is a risk that the issuing country could default on their debts. However, money managers now consider that emerging markets are much more adept at handling their debt than they were in the 1980's for example. Many emerging countries have much lower levels of debt than Western countries.

The iShares JPMorgan $ Emerging Markets Bond Fund (stock symbol: IEMB) is an ETF that invests in emerging market debt. A dividend is paid out on a monthly basis. The holdings within the ETF vary, but holdings usually contain debt from countries such as Russia, Peru, Indonesia, Brazil and Turkey.

The author of this article is not authorised to give financial advice. This article does not consitute financial advice. Before making investment decisions consult an independent financial advisor.