Building a sizable nest egg can take decades. But once it’s there, it can fuel a sizable income stream for a lifetime.
Indeed, even if one has far more modest sums to invest, it can prove worthwhile to see how much income various investment instruments can generate. So, let’s examine three Fidelity exchange-traded funds (ETFs) to get a sense of what’s possible.
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Fidelity International Value Factor ETF
First up is the Fidelity International Value Factor ETF (FIVA 0.42%).
FIVA Total Return Level data by YCharts
This fund focuses on international mid and large-cap value stocks. It boasts a solid 3.5% dividend yield and a meager expense ratio of 0.18%.
Top sectors include financials (25% of total holdings), healthcare (10%), and consumer durables (7%).
Finally, risks for this fund include its heavy focus on international stocks, combined with a below-average performance history. Since its inception, the fund has generated a compound annual growth rate (CAGR) of only 2.9%.
At any rate, investing $3,000,000 in this fund would produce more than $100,000 in annual dividend income based on the current yield.
Fidelity International High Dividend ETF
Next up is the Fidelity International High Dividend ETF (FIDI 0.29%).
FIDI Total Return Level data by YCharts
This Fidelity ETF tracks a proprietary index of fewer than 100 international dividend-paying stocks. It boasts an impressive dividend yield of 5.7% and an expense ratio of 0.18%.
Slightly more than half of the fund’s holdings (52% of the total) are European-based stocks, while about 30% are based in the Asia Pacific region, and less than 20% are from North, Central, and South America.
Top sectors include financials (32% of total holdings), utilities (11%), and communications (10%).
Risks of owning this fund include its high concentration of international finance stocks, which represent roughly a third of its holdings. In addition, the fund’s lifetime performance of 0.9% is well below the average return of U.S.-based benchmark indexes such as the S&P 500 over the same period.
Investing roughly $1,820,000 in the fund would generate $100,000 in annual dividend income.
Fidelity Yield Enhanced Equity ETF
Finally, there’s the Fidelity Yield Enhancer Equity ETF (FYEE 0.56%).
FYEE Total Return Level data by YCharts
This fund takes a different approach to generating income. Rather than just targeting value stocks that pay ample dividends, this fund buys growth stocks — even those that do not pay dividends at all.
So, how does it generate a dividend yield of 5.4%?
In a nutshell, the fund utilizes a covered call options strategy. By selling call contracts against the fund’s core holdings, fund administrators surrender some of the potential price appreciation of the fund’s holdings to generate a steady income stream.
That’s how the fund can claim top holdings like Nvidia, Amazon, and Alphabet — all of which pay tiny dividends or no dividends at all — yet still generate significant income for the fund’s investors.
Unlike the first two funds covered, this fund’s holdings are almost exclusively American companies (96% of total holdings). Top sectors include technology (44% of total holdings), finance (12%), and retail (9%).
Risks of owning this fund include concentration risk in the “Magnificent Seven” stocks, along with a slightly elevated expense ratio of 0.28%.
Yet, investing $1,960,000 in this fund would generate $100,000 in annual distributions from the ETF.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, and Nvidia. The Motley Fool has a disclosure policy.
