In this ultra low rate environment, investors seeking current
income have duly turned their attention to products that are
dividend focused or to those products that pay high yields in any
number of other categories like MLPs or BDCs. (11 Great Dividend
ETFs). With low yields from traditional sources of income, this
trend is expected to continue well into 2013 as well.
Furthermore, investors should also note that high dividend
paying stocks play a defensive role in a portfolio and can help to
reduce volatility in otherwise uncertain times. This can be
especially true when investors look at high dividend paying ETFs
which have the benefits of high yields but spread risk around a
variety of sectors or firms.
In this current economic environment, investors should note that
there has been an increase in dividend focused ETF products with
more than 60 available in the market. This has given investors a
wide variety of choices, allowing each to target whichever sector
or segment that corresponds best to their portfolio needs (Three
Excellent Dividend ETFs for Safety and Income).
Given how many options are out there, investors may have a
difficult time deciding which product is best for them. Due to
this, we have highlighted 10 of our favorite high yielders in
greater detail below.
Each of these ten funds has a high yield focus, helping
investors to escape the current low yield environment. Furthermore,
each has paid out (or is expected to pay out) at least 7% over a
year, thoroughly crushing not only T-Bill yields, but S&P 500
payouts as well, thus offering investors easy ways to add a great
deal of income to their portfolios via a single
ticker:
FTSE NAREIT Mortgage Plus Capped Index Fund
(REM)
Investors looking for high dividend yields have historically
favored the REIT sector. Solid dividend payouts are arguably the
biggest enticement for REIT investors as U.S. law requires REITs to
distribute 90% of their annual taxable income in the form of
dividends to shareholders (Are QE3 and Mortgage REIT ETFs a Winning
Combo?).
In this context, REM’s dividend will be extremely tough to beat
as the product currently has a 30 Day SEC Yield of 12.4%. REM
tracks the FTSE NAREIT All Mortgage Capped Index and trades in
volumes of more than 1,000,000 shares on a normal day and manages
an asset base of $890.6 million.
Currently, the asset base is limited to 30 stocks in which the
ten largest weightings take around 74%. So it is clear that the
fund performance is largely dependant on the performances of the
top 10 holdings. Investors need to pay a fee of 48 basis points
annually for this fund, so it is middle-of-the-road in terms of
expenses.
PowerShares S&P 500 BuyWrite Portfolio
(PBP)
At a time when investors are not really sure of the direction of
the market, they can stick to buy-write strategies. For this kind
of investment, investors can look forward to PowerShares S&P
500 BuyWrite Portfolio.
This ETF works on the strategy of buy-write by using the
technique with S&P 500. In other words, the fund will write
covered calls, an approach that can generate income but limit gains
in rapidly surging markets (The Introductory Guide to Real Estate
ETF Investing).
PBP provides investors an excellent opportunity to avail
dividend yield in this uncertain environment. The fund has a
dividend yield of 10.28%. However, investors should note that this
fund generally offers high dividend yields when the market remains
largely uncertain. When the market is on the rise, the fund may
underperform and these an extremely variable dividend yield.
With that being said, it should be noted that the fund provides
exposure to a large basket of 501 stocks with the top three
holdings being Apple, Exxon and General Electric which gets a share
of 10.1% in the fund. However, it appears that the fund is quite
expensive charging a fee of 75 basis points on an annual basis.
PowerShares KBW High Dividend Yield Financial ETF
(KBWD)
This one looks to focus on the financial sector companies with
high dividend yields and tracks the KBW Financial Sector Dividend
Yield Index. The Index is calculated using a dividend yield
weighted methodology that reflects the performance of 24 to 40
publicly listed financial companies.
This produces a fund which has a dividend yield of 9.8%, a good
level considering the current low rate environment (Three
Overlooked High Yield ETFs). The fund holds a basket of 36
financial securities which are principally engaged in the business
of providing financial services & products in the United
States.
The fund has 35% of its asset base invested in the top 10
holdings with the largest allocation going to BGC Partners with a
share of 5.25%. Among others, the fund does not invest more than
5.16% in any one holding.
The fund has a tilt towards value stocks in which it
invests more than 85% of its asset base. The fund is pretty
expensive charging a fee of 1.32% on an annual basis.
ETRACS Monthly Pay 2xLeveraged Long Alerian MLP
Infrastructure Index ETN
(MLPL)
ETRACS Monthly Pay 2xLeveraged Long Alerian MLP Infrastructure
Index ETN tracks the Alerian MLP Infrastructure Index with 2x
monthly leverage. The index has been designed with 25
infrastructure MLPs the majority of whose income come from
transportation and storage of energy commodities.
Income focused investors may really like this note as it offers
a dividend yield of 10.7% (Can You Beat These High Dividend ETFs?).
Despite the handsome dividend yield that it pays to investors, the
fund appears to be light in volume as total shares traded stands at
34,000 per day. The fund manages an asset base of $122.1
million.
Exposure to 25 holdings includes Kinder Morgan Energy Partners
LP, Enterprise Products Partners LP and Energy Transfer Partners LP
as the top three preferences with weightings of 9.48%, 9.45% and
7.03%, respectively. Company specific risk is relatively high in
the note as 66% of the asset base goes to the top 10 holdings. The
note charges a hefty fee of 85 basis points annually.
Market Vectors Uranium+Nuclear Energy ETF
(NLR)
Market Vectors Uranium+Nuclear Energy ETF tracks the DAXglobal
Nuclear Energy Index and focuses on those companies which either
operate or build nuclear plants or those that mine for the raw
material (Three ETFs for a Nuclear Power Renaissance).
This produces a fund which is home to just 20 constituents and
pays a dividend yield of 13.4%, a very good level for income
focused investors. However, it appears that the high dividend yield
has not been able to arrest much investor attention as the traded
volume stands at 9,700 on a normal day.
It should also be noted that among the 20 companies, the fund
invests 50% in large caps with a share of 31% going to small caps.
Among the 20 holdings, the top ten holdings get a share of 66%. The
fund charges an expense ratio of 60 basis points on an annual
basis.
Mortgage REIT Income ETF
(MORT)
Another ETF with REIT exposure which needs to be mentioned here
is Mortgage REIT Income ETF. The fund tracks the Market Vectors
Global Mortgage REITs Index (Top Three Mortgage Finance ETFs).
The fund with total holdings 25 securities pays a dividend yield
of 9.68%, a good level considering the uncertain economic
environment. The fund is tilted towards large cap and mid cap
companies while small caps get a pint sized share.
Among the top 10 holdings, the largest two (Annaly Capital and
American Capital Agency) get double-digit allocation in the fund
with a combined share of 35%. Among others the fund does not appear
to invest more than 5.19%. The fund charges an expense ratio of 40
basis points annually.
ETRACS 2xLeveraged Long Wells Fargo Business Development
Company Index ETN
(BDCL)
BDCL has been designed to include those companies which invest
in small businesses that are still in their early stages. They
generally invest in the company via either debt or equity
stakes.
In order to obtain tax privileges these firms generally provide
investors with high dividends and BDCL is not an exception. It
serves investors with an impressive dividend yield of 18.7%, one of
the highest dividend yields in the list (BDCL: Yield King of
Leveraged ETFs).
BDCL’s index provides exposure to 28 stocks in which it invests
an asset base of $58 million. Despite the high dividend yield in
the fund, especially in this low rate environment, a look at the
trading volume suggests that the fund has not been able to lure
investors. Trading volume stands at 53,000 a day.
Also, 70% of the asset base is allocated to the top ten holdings
suggesting a high level of concentration. Moreover, the top three
companies get double-digit allocation in the note with the
remaining not getting beyond 9.39% each. The fund also appears to
be pretty expensive as it charges a fee of 85 basis points
annually.
Peritus High Yield ETF
(HYLD)
For an active approach to junk bond ETF investing, investment in
HYLD from AdvisorShares is recommendable (AdvisorShares Planning
New Active Income ETF). HYLD differs from other ETFs in the space
attributable to its different strategies that it applies in the
fund.
The fund has a minimal focus on high leveraged buyouts and uses
a ‘Hedged HY’ strategy which enables it to shift to short term
T-Bills whenever there is pressure on the lower quality debt, a
feature unique to the fund.
The fund also provides an impressive yield of 8.89% to
investors, a good level considering the current macro economic
environment. However, investors are charged 1.36% for investing in
the fund.
The fund provides exposure to 37 junk corporate bonds and has a
lower effective duration of 3.54 years and a higher yield to
maturity of 10.9%.
IQ Australia Small Cap ETF
(KROO)
For high dividend yielding securities in Australia, investors
can certainly look to KROO. The product tracks the IQ Australia
Small Cap Index. The Index focuses on companies that make up the
smallest 15% of the market cap in the nation.
This resulted in a portfolio of 105 securities with an expense
ratio of 69 basis points a year in fees. Furthermore, the product
pays out an impressive dividend yield of 8.6%, making it an
interesting choice for investors seeking international
exposure.
This ETF assigns 30.1% of its asset base to basic materials
stocks suggesting a tilt towards the commodity-intensive segment of
the Australian economy. An investment in KROO is warranted for
investors looking for an exposure to Australia’s resource
dominance.
The fund appears to be spread out among companies, as investment
in the top 10 holdings stands at 23.2%. Seek Ltd, Bank of
Queensland Ltd and Ansell Ltd take the top three positions in the
fund with asset investment of 2.92%, 2.77% and 2.58%, respectively
(Australia ETFs: a Developed Market Play on Asian Growth).
Global X SuperDividend ETF
(SDIV)
For a global exposure to the ETF space, investors can invest in
Global X’s SDIV. The fund tracks the price and performance of the
Solactive Global SuperDividend Index, thereby giving investors an
option to target dividend paying stocks on a global basis. With
asset under management of $134.5 million, this fund looks to also
have a tight bid ask spread while still giving investors high
yields (Inside the SuperDividend ETF).
The fund has an attractive dividend yield of 7.66% thereby
providing a good level of current income to investors in this
uncertain economic environment. SDIV has an edge in expenses as it
charges an expense ratio of 58 basis points, one of the lowest on
the list.
SDIV provides exposure to 101 high dividend yielding stocks
while around 12.9% of which make up the top 10 holdings. Among
sector holdings, real estate, financials and telecommunication
receive the highest allocation, collectively comprising 58.9% of
its asset base (The Introductory Guide to Real Estate ETF
Investing).
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E-TRC WF BDCI (BDCL): ETF Research Reports
PERITUS-HIGH YL (HYLD): ETF Research Reports
PWRSH-K HDY FP (KBWD): ETF Research Reports
IQ-AUSTRALIA SC (KROO): ETF Research Reports
E-TRC UBS 2XLLA (MLPL): ETF Research Reports
MKT VEC-MTGE RE (MORT): ETF Research Reports
MKT VEC-NUCLEAR (NLR): ETF Research Reports
PWRSH-SP5 BUYWR (PBP): ETF Research Reports
ISHARS-F N MTG (REM): ETF Research Reports
GLBL-X SUPERDIV (SDIV): ETF Research Reports
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