PowerShares Adopts Monthly Dividends for High Yield ETF (PEY)

Powershares has changed the dividend policy for their PowerShares High Yield Equity Dividend Achievers ETF (AMEX: PEY) from quarterly dividends to monthly dividends. The new distribution policy will take place on May 1, 2006.

PEY is Powershares's highest yielding US dividend exchange traded fund. PEY replicates the Mergent Dividend Achievers' 50 Index of the top 50 highest yielding stocks that have raised dividends for over 10 consecutive years. This index has most of its components in the financial and utility sectors. According to Mergent, the index has a yield of 3.92%.

My guess is that Powershares is making the change to differentiate PEY (the second largest dividend ETF) from DVY (the largest with over $6.7 Billion in assets).

PEY is the first ETF to make monthly cash distributions. The only other exchange traded funds offering monthly dividends are the iShares Bond ETFs (SHY, IEF, TLT, AGG, LQD). Treasury bond income funds have been facing competition from online high yield savings accounts which pay monthly interest. These savings accounts have FDIC insurance (backed by the full faith and credit of the US government) and do not charge brokerage or redemption fees, like a mutual fund would.

This change in dividend policy will remove one of the few competitive advantages of income mutual funds over ETFs. Most income mutual funds pay out monthly distributions. Monthly payouts help people who depend on their investments to pay living expenses. I expect that other income-oriented ETF's will also switch over to monthly distributions.

Most investors are not as single minded as John D Rockefeller who once said: "Do you know the only thing that gives me pleasure? It's to see my dividends coming in." Monthly distributions are psychologically appealing; they let shareholders enjoy the pleasure of seeing dividends coming in 12 times a year.

Source: Board Approves Change in Distribution Policy for PowerShares High Yield Equity Dividend Achievers(TM) Portfolio

Comments

[Internet2k4]

It's funny how this sort of thing affects an investor's expectations. Annual payout - I don't really expect it to repeat. Quarterly - well, maybe. Monthly - like clockwork, or else. Good luck, Powershares.

[Internet2k4]

At the same valuation a reliable dividend paying company has a different kind of attraction for investors: say it's not sexy, but is a good cook. Luckily, the stock market is a polygamous society.

[EverydayFinance]

Thanks for highlighting these; I was familiar with DividendTree and some other companies with similar instruments, but these are new to me. I've done some research and analysis on some like-minded high yield ETFs, including international real estate investment trusts which also have high yield payouts. For more like these, please visit my site and leave comments. Thanks, Dan

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