Investors are seeking secure investments that can generate a good yield due to falling stock prices, rising inflation, and rising interest rates. Currently, the 10-year Treasury note yield has reached a multi-year high alongside high-yield dividend ETFs. Interestingly, exchange-traded funds (ETFs) have emerged as a viable option for investors who are looking for high yields. Among the ETF categories that offer the highest yield are Mortgage REITs, Master Limited Partnerships (MLPs), and Superdividends.
Basics
In the aftermath of the Global Financial Crisis, pursuing dependable yields has been a protracted and gradual endeavor. Facing challenges, investors grappled with central banks slashing interest rates and implementing substantial monetary stimulus measures. However, recent times have witnessed a reversal of these trends in specific regions. Notably, the U.S. Federal Reserve is consistently raising interest rates to counter inflation, echoing similar actions by central banks globally.
Furthermore, the U.S. 10-year Treasury yield, which hit a low of 1.32% in 2016, surged to 3.97%. In light of these shifts, the pertinent question arises: should investors persist in assuming heightened risks with alternative investments to chase superior yields? Alternatively, is it prudent to opt for Treasuries and investment-grade bonds now that they can generate yields once again?
In the quest for yield, exchange-traded funds emerge as an unexpected contender. Investors seeking yields exceeding 2% to 3% may find potential in instruments with substantial distributions. Notably, certain ETFs yielded dividends ranging from 7% to 15%, presenting an intriguing avenue for consideration.
Performance Highlights of Mortgage REIT Exchange-Traded Funds
Numerous ETFs are showcasing robust performance, boasting double-digit yields derived from the average dividend yield of their holdings and the latest 30-day SEC yields. Diverging from equity REITs, many mortgage REITs focus on mortgage-backed securities, frequently utilizing leverage for mortgage products. Mortgage REIT ETFs are demonstrating resilience against the backdrop of elevated inflation and a buoyant housing market.
Yield-Rich Investments: Exploring MLP Exchange-Traded Funds
Master limited partnerships (MLPs) have long been recognized for delivering elevated yields, primarily focusing on energy infrastructure entities such as storage facilities and pipelines. It's noteworthy that dividend ETFs, characterized by a reduced number of holdings compared to non-dividend counterparts, are susceptible to increased volatility. The impact of a single stock can be more pronounced in these funds due to their limited holdings.
Financial Sector Exchange-Traded Funds
Within the financial sector, ETFs typically encompass a diverse array of stocks, including those from financial institutions, banks, and insurance companies. Additional holdings may comprise private equity or mortgage REITs. A case in point is the Invesco KBW High Dividend Yield Financial ETF (KBWD), boasting a 12-month yield of 11.94%. Notably, it comprises 61.57% in financial services and 36.96% in real estate.
High-Yield Strategies: Superdividend Exchange-Traded Funds
ETFs categorized as "superdividend" seek high-yield stocks across various countries and sectors. One standout in this category is the Global X SuperDividend ETF (SDIV), renowned for curating the top 100 dividend-yielding stocks globally, yielding 15.49%. Global X offers additional superdividend ETFs, each with a nuanced focus.
Conclusion
Despite the common perception of ETFs as stable and low-risk investment options, the highlighted products concentrate on portfolios that inherently carry greater risk compared to alternative ETF baskets. Although these ETFs demonstrate elevated average dividend yields and robust 30-day SEC yields, indicating a degree of sustainability, the stability of any non-Treasury investment over the long term is never assured. Consequently, investors considering these ETFs must remain cognizant of the associated risks.