Three Overlooked High-Yield ETFs

Investors have an opportunity to invest in ETFs that not only offer upside potential through capital appreciation, but also above average dividends. Whether you are a young or old investor, the thought of a regular sizable dividend payment is attractive.

Here are three ETFs that I believe will outperform the market along with a high dividend yield.

1. SPDR High Yield Bond ETF (JNK) - Invests in corporate high yield (junk) bonds and pays out a monthly dividend that equates to an annual yield of 13%. Junk bonds and other risky assets remain undervalued and as the economy comes out of the recession pricing will move back to normal. JNK should move higher in value and continue to pay its monthly dividend.
2. iShares S&P US Preferred Stock ETF (PFF) - Invests in preferred shares of companies that are mainly in the financial sector. The annual dividend yield is 11% and the ETF has more than doubled off the low of March after money came back into the financial stocks. PFF is a great way to participate in the financial sector without taking the risk of an individual stock and along the way collect a sizable dividend.
3. Market Vectors Barclays Municipal High Yield ETF (HYD) - The ETF invests the majority of its assets in high yielding (junk) municipal bonds with about 25% in investment grade bonds. According to the Van Eck website the ETF currently has 30-day SEC yield of 7.16%, which when compared to taxable bonds is even more attractive. If you fall into the 28% tax bracket the tax equivalent yield is 9.94% and as high as 11.02% if you are in the 35% tax bracket. I feel there is more upside in the municipal bonds and that the majority of the high yielding bonds are safe because the federal government will back them up if need be. Whether you agree me that thought or not, I believe it is reality.

While the first two ETFs are great for a tax deferred account, HYD is ideal for a taxable account and investors in a high tax bracket.

Disclosure: Long JNK at time of publication.

Comments

[TCK]

Good information !

Even better, with JNK and PFF an option startegy can be added . Covered calls or collars, etc.

2009 Aug 01 08:51 AM

[Maxe Paul]

Your basically suggesting people invest in ETF Junk, and financials (again junk!), and to top it off invest as a tax shceme of some type,

Amazingly horrible strategy IMO at the top of a bear market rally.

Have you not learnt anything from this financial crisis?

2009 Aug 02 08:38 AM

[FB5000]

Thanks. These are all good choices for the yield investor

Maybe JNK is a little long in the tooth now. PFF also has has a lot of appreciation. So maybe wait for a small dip that has to come here.

JNK is a good proxy for the small caps and with the yield is attractive. It will move with the market.

PFF is heavily weighted towards financials which is a bet on their health.

HYD I like it. You can also get a similar yield on IQC and works well for CA residents. It trades at a nice discount to NAV. Worth looking at also.

2009 Aug 02 01:16 PM

[RAPROX]

I am an investor in PFF and have enjoyed the ride up from the bottom and the nice dividends along the way (which I reinvest BTW). I have put a trailing stop with a fixed 7% down that ratchets up as the ETF has risen. It gives me insurance that should there be another dive in the market, I'll get called out protecting my capital gain.

2009 Aug 04 11:16 AM

[RAPROX]

To this I would recommend PGF and PGX as of the same character. Both have done very well since March. I hold both.


On Aug 04 11:16 AM RAPROX wrote:

> I am an investor in PFF and have enjoyed the ride up from the bottom
> and the nice dividends along the way (which I reinvest BTW). I have
> put a trailing stop with a fixed 7% down that ratchets up as the
> ETF has risen. It gives me insurance that should there be another
> dive in the market, I'll get called out protecting my capital gain.

2009 Aug 04 11:59 AM

[Matthew D. McCall]

Both very similar recommendations (PGF and PGX). The one difference is that PGF only concentrates on financial preferreds.


On Aug 04 11:59 AM RAPROX wrote:

> To this I would recommend PGF and PGX as of the same character. Both
> have done very well since March. I hold both.

2009 Aug 05 06:42 AM

[Jake2]

Another writer here suggests tht PFF is overbought and thus ripe for a pullback.

2009 Aug 16 02:21 AM

[Matthew D. McCall]

Agreed - a pullback is due and would look to use any such pullback as a buying opportunity.


On Aug 16 02:21 AM Jake2 wrote:

>
> Another writer here suggests tht PFF is overbought and thus ripe
> for a pullback.

2009 Aug 19 01:43 PM