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Dividend
ETFs
High-Dividend
Exchange-Traded-Funds
By now, you probably know about the advantages of using
exchange-traded-funds (ETFs) to hop on and off market sector swings. But
you might be surprised to learn than many ETFs pay significant dividend
yields (next 12-month’s dividends divided by the price you pay for the
shares).
For instance, more than 100 ETFs are paying at least three percent yields
and more than 20 are paying five percent or higher. In fact, four are
paying at least eight percent. Here’s a rundown on the top five yielding
exchange-traded-funds.
iShares Mortgage Plus (REM) 9.6%
The iShares NAREIT Mortgage Plus Capped Index Fund tracks an index that,
in theory, measures the performance of the residential and commercial real
estate, mortgage finance, and savings associations sectors of the U.S.
stock market. However, when I checked, five of the fund’s top ten holdings
were mortgage REITS (a special type of real estate investment trust that
invests in mortgages backed by real estate). The remaining five were
relatively small banks.
Mortgage REITs typically pay double-digit dividend yields compared to four
percent to five percent for the small banks. For reasons that I don’t have
room to go into here, even with the weak housing market, mortgage REITs
are not particularly risky stocks. However, the fund’s index can be
rebalanced quarterly. Its sky-high dividend yield would drop if, at some
point, the fund deemphasizes the mortgage REITs.
SPDR Intl. Real Estate (RWX) 8.5%
The SPDR Dow Jones International Real Estate Fund tracks an index that
measures the performance of publicly traded real estate operators outside
the U.S., both in developed and emerging markets. Its biggest holding is
Westfield Group, a Australian-based shopping mall operating with assets in
the U.S., the United Kingdom, New Zealand, as well as in Australia. Its
next biggest holding is Unibail-Romeco, a Paris-based shopping mall
operator with operations in several European countries besides France.
CEF Income (PCEF) 7.9%
CEF Income Composite Portfolio tracks the performance of an index of
closed-end funds. Closed-end funds are a special type of mutual fund that
only sell shares during their IPOs (initial public offerings). After that,
the shares trade between buyers and sellers on the open market just like
stocks.
Closed-end fund managers can implement long-term strategies because,
unlike conventional mutual fund managers, they don’t have to worry about
selling holdings to redeem fund shares when fund holders sell, or
investing new cash when holders add to positions.
The CEF’s index is reconstituted quarterly, using a quantitative formula
to create a new portfolio of 115 or so funds drawn from a universe of 350
closed-end funds.
iShares High Yield (HYG) 7.9%
iShares iBoxx High Yield Corporate tracks an index of below investment
grade (junk) bonds mostly issued by U.S.-based corporations. The risk of
owning junk-rated corporate bonds depends on the state of the overall
corporate credit markets. For instance, junk bonds were very risky in
2008/2009, when credit was tight and many corporations were teetering. Now
the opposite is true. Most publicly traded corporations, already flush
with cash, can easily raise more either by selling new shares or by
borrowing.
iShares U.S. Preferreds (PFF) 7.2%
iShares S&P U.S. Preferred Stock Index tracks an index of preferred stocks
listed on major U.S. exchanges. Corporations sell preferred shares to
raise cash, much the same as bonds. Most preferreds are rated by major
credit agencies and roughly 80 percent of the fund’s holdings are rated
investment quality. Preferreds, although similar to bonds, are riskier.
Unlike bonds, a company can suspend paying preferred dividends without
filing for bankruptcy.
You can see a list of all 400 or so dividend paying ETFs on my Dividend
Detective site (www.dividenddetective.com),
nicely sorted with the highest payers at the top. As is the case for all
such lists, do your due diligence. The more you know about your
investments, the better your results.
published 7/3/11 |
