3 Undervalued Dividend ETFs With Over 50% Upside Potential

Now is the perfect time to start hunting for undervalued dividend ETFs with high upside potential. Amplify CWP International Enhanced Dividend Income ETF (NYSEARCA:IDVO), VanEck Energy Income ETF (NYSEARCA:EINC), and VanEck Natural Resources ETF (NYSEARCA:HAP) specifically are well-positioned to deliver. There is a clear case for why these dividend ETFs can offer blockbuster returns alongside their yields in the coming months. The Federal Reserve is being increasingly pressured to reduce interest rates, and the Fed Chair Jerome Powell is expected to no longer be in the picture later this year.

The Fed would most likely have a Trump appointee as its chair after that. As a result, we may be looking at interest rates at or even lower than 3% in the not-so-distant future. Buying assets that yield higher than that can position you for both high income and capital gains, as higher yields will be harder to come across once the Fed starts to ease faster than expected.

And of course, if these ETFs hold distressed assets that recover during rate cut cycles, your holdings can balloon.

Amplify CWP International Enhanced Dividend Income ETF (IDVO)

The U.S. is quickly moving away from being a country that imports everything to a manufacturing powerhouse, one that may end up having an export surplus in the future. The trade deficit will likely come down significantly, even if it does not shift to a surplus, due to how aggressively the U.S. is moving to onshore and “nearshore” industry.

This is already bringing structural shifts. The dollar has lost over 11% of its value against the Euro over the past year. Further rate cuts are likely to accelerate that decline, and it’s not a bad thing, as it corrects for the appreciation seen in the previous year and makes U.S. exports more competitive.

All that preamble is necessary to say that the Amplify CWP International Enhanced Dividend Income ETF can continue doing well. It invests in dividend-paying international stocks and then writes covered calls on them. These stocks will be worth more if the USD falls in value and international businesses catch tailwinds from a looser environment.

IDVO is up 21% in just the past six months alone, on top of the 5% dividend yield. Dividends are distributed monthly.

The drawback is that the expense ratio is 0.66%, or $66 per $10,000. However, if rate cuts accelerate as expected and international businesses continue doing well, it’s worth the price.

VanEck Energy Income ETF (EINC)

The energy sector has made a comeback in earnest. Oil and gas businesses were once seen as outdated and on the precipice of a decline due to renewables being on the rise. The 2022 war in Eastern Europe completely changed that. The U.S. became Europe’s largest source of energy, and oil proved itself to be indispensable.

The VanEck Energy Income ETF is a good way to bet on what’s to come with the energy sector. Major oil companies may gain more than expected due to the waning interest in renewables. Recent events in Venezuela can make energy even more profitable if the country lets Western oil companies tap into its huge natural reserves.

EINC remains mainly an oil plus midstream bet. I expect it to do well going forward. It comes with a 4.41% dividend yield. A 50% upside from these levels is very much on the optimistic end, but possible if there’s an oil shock or if Venezuela opens up.

The expense ratio is 0.47%, or $47 per $10,000.

VanEck Natural Resources ETF (HAP)

The VanEck Natural Resources ETF is another energy-focused pick, as two of its top 3 holdings are oil companies. That said, 40.8% of its holdings belong to the “Basic Materials” industry.

Put simply, you’re investing in hard assets. Hard assets are seeing a rapid resurgence. Silver, gold, rare earths, and most things that can be put to use industrially have seen explosive growth.

These trends are expected to continue this year, and HAP will be a significant beneficiary. HAP has already gained 23% over the past 6 months alone. Dividends are on the moderate side with a 2.1% yield. I do expect an increase due to its holdings seeing their cash flows surge alongside commodity prices. You’ll pay just 0.42% or $42 per $10,000 in expenses.

Another 50% is a long shot. Still, considering the ETF is up almost 8% year-to-date already, I won’t write it off.