Dividend hunters who are willing to stomach some risk may want to take a look at a financial sector exchange traded fund with robust yields. However, this dividend-themed ETF has a heavy weighting in real estate investment trusts, or REITs.
PowerShares KBW High Dividend Yield Financial Portfolio (KBWD) has an 8.6%, 30-day SEC yield, and is up 20.9% year-to-date. KBWD follows the KBW Financial Sector Dividend Yield Index, which is weighted by dividend yield -- companies with a higher dividend payout are given a heavier weighting.
According to a Keefe Bruyette & Woods note, yields on the ETF are projected to remain about 8%, compared to the 3% or lower yields of other large dividend ETFs and the S&P 500′s 2.11% yield.
As such, investors have taken notice and funneled over $100 million into KBWD year-to-date, with $14 million added month-to-date. To put this in perspective, the fund now has $153.4 million in assets under management after the market's rush to dividends.
Nevertheless, potential investors should note that the fund largely tracks small- and mid-cap companies involved in banking, insurance and diversified financial services, along with mortgage real estate investment trusts. Small-cap companies make up 58% of the overall portfolio and mid-caps account for 36%.
"In addition to the risk inherent in high dividend paying funds, this fund increases risk by concentrating in just one sector and on the more volatile small-cap segment," Morningstar analyst Michael Rawson cautioned.
PowerShares KBW High Dividend Yield Financial Portfolio
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Max Chen contributed to this article.