3 High-Yield ETFs That Can Replace a Second Income

<!– Legacy Bulma: `live-update-content` opening

Are you tired of side gigging? Well, you could press the breaks and start receiving passive income. Many investors replace their second income by investing in exchange-traded funds (ETFs).

These are professionally managed funds that invest in hundreds and sometimes thousands of stocks. So that eliminates the task of carefully analyzing and choosing which stocks to invest in.

Moreover, many ETFs pay dividends. These are regular payments companies make to shareholders out of their profits. And through these dividends, high-yield ETFs can provide you with a steady stream of income that could ultimately replace your second job. This strategy is also popular among retirees who use dividend income to cover necessities.

But with thousands of dividend-paying ETFs out there, it can be difficult to choose the right ones. So we narrowed it down to three powerhouse ETFs that could replace your second income.

Schwab U.S. Dividend Equity ETF (SCHD)

The Schwab U.S. Dividend Equity ETF (SCHD) is a very popular fund among dividend investors. And while its yield of 3.90% isn’t the largest on this list, it stands out for offering a great degree of stability and consistency.

The Schwab U.S. Dividend Equity ETF aims to mimic the returns of the Dow Jones U.S. Dividend 100 Index. The fund invests in 103 large-cap stocks of high quality companies that pay consistent dividends. It also screens these companies for strong fundamentals like cash flow and profits. These companies are considered stable and capable of continuing to generate consistent returns. Most of its holdings are in the energy, consumer staples and healthcare sectors. These are generally considered defensive sectors, which means that these companies are expected to remain stable even in times of economic turmoil.

Some of its top holdings include Cisco, PepsiCo (NASDAQ:PEP) and Home Depot.

The fund is passively managed. This means the fund managers try to mirror the returns of a target index, rather than frequently changing holdings in an attempt to outperform the index. This keeps costs low. And that’s important.

When shopping around for ETFs, it’s important to pay attention to the fund’s expense ratio. These are annual management fees that could eat away at your returns. But when it comes to SCHD, its expense ratio is among the lowest in the industry. It has an expense ratio of 0.06%. That translates to an annual fee of $6 for every $10,000 invested. Not too bad.

And the fund also has a reputable track record. It currently has net assets of $71.55 billion. And it boasts a 5-year return of about 38%. The fund has been active since October of 2011 and is sponsored by Charles Schwab, one of the largest and most influential brokerages in the country.

JPMorgan Equity Premium Income ETF (JEPI)

Next on our list is the JPMorgan Equity Premium Income ETF (JEPI). This fund produces income in two ways. It invests in large-cap stocks. And it also sells options.

JEPI screens stocks that are overvalued and undervalued with attractive risk and return characteristics. It also highlights stocks with low volatility. The fund focuses on the S&P 500, which contains the largest companies in the country.

And it boasts an impressive yield of 8.37%, as well as a 5-year return of about 10.62%.

Its main holdings are in the Information technology, financials and healthcare sectors. Its top holdings include Nvidia (NASDAQ:NVDA) , Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT)

However, its expense ratio is a bit higher than SCHD at 0.35%. Moreover, the fund holds net assets of $41.32 billion.

Vanguard High Dividend Yield ETF (VYM)

Finally, we have the Vanguard High Dividend Yield ETF (VYM). This fund stands out for performance and diversification. It invests in more than 500 large-cap stocks of companies that are paying above average dividend yield. The fund pulls in a yield of 2.49% It also has an impressive 5-year return of about 15.13%. Its main holdings are in the financial, consumer discretionary and basic materials sectors. Its top holdings include Broadcom (NASDAQ:AVGO) and JPMorgan Chase.

The fund has net assets of $81.29 billion. It also has a low expense ratio of 0.06%.

Which should you invest in?

Any of these three funds can provide steady income. However, you can also combine JEPI, VYM, and SCHD to create the equity portion of a diversified portfolio. With that said, you may also want to look into bond funds. This can provide risk protection if the stock market undergoes a downturn.

The image featured for this article is © kody_king / Shutterstock.com