Guide to 10 Great ETFs Yielding 7% or More
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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Read the analyst report on REM
Read the analyst report on PBP
Read the analyst report on KBWD
Read the analyst report on MLPL
Read the analyst report on NLR
Read the analyst report on MORT
Read the analyst report on BDCL
Read the analyst report on HYLD
Read the analyst report on KROO
Read the analyst report on SDIV
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Read the analyst report on REM, PBP, KBWD, MLPL, NLR, MORT, BDCL, HYLD, KROO, SDIV
