The November 29th issue of Barron’s featured a special on retirement income. As more and more baby boomers cross over the retirement threshold, the topic of income generating investments becomes more popular. When doing a Google search for “Retirement Income”, it produces almost 4 million results. Clearly, there is a plenty of information about retirement income, but here is another view to add to that list.
On November 29th, the 10yr Treasury yield was 2.79%, so if an investor were to invest $100,000 in 10yr Treasury bonds the most income a retiree could expect is $2,790 annually. Currently, the Fed is more concerned with deflation then inflation. Unfortunately the Fed is only concerned about core inflation, which is CPI (inflation) minus food and energy prices. Historically, food and energy prices experience temporary price shocks, and these shocks can give a misleading impression of the overall direction of inflation. However, in today's environment, food prices are up drastically, with the expectation of further price appreciation, investors should look for opportunities to increase their purchasing power. So, I compiled a list of the 10 highest Dividend Yielding ETPs (Exchange Traded Products).
10 Highest Dividend Yielding ETPs
|Ticker||Name||Geographic Focus (Holdings Based)||Industry Focus (Holdings Based)||Inception Date||Tot Ret 1D||Tot Ret Ytd||Tot Ret 1Y||Div 12M Yld Gross||Beta||Avg Volume 30 Day|
|REM||ISHARES FTSE NAREIT MORTGAGE||US||Mortgage/Reits||5/4/2007||0.27%||9.43%||13.96%||10.41%||1.05||51,546.00|
|JNK||SPDR BARCLAYS CAPITAL HIGH||US||High Yield Corp Bonds||11/28/2007||0.53%||11.43%||15.94%||9.71%||0.56||2,570,689.00|
|DRW||WISDOMTREE INTL REAL ES FD||Asia Pacific||Intern'l REITs/Real Estate||6/5/2007||0.53%||9.60%||12.14%||9.15%||0.99||44,614.00|
|HYG||ISHARES IBOXX H/Y CORP BOND||US||High Yield Corp Bonds||4/11/2007||0.26%||8.61%||12.98%||8.46%||0.58||966,845.00|
|PHB||POWERSHARES FNDMTL H/Y CORP||US||High Yield Corp Bonds||11/15/2007||0.22%||7.99%||12.14%||7.91%||0.6||374,314.00|
|IFGL||ISHARES FTSE EPRA/NAREIT DEV||International||Intern'l REITs/Real Estate||11/16/2007||0.10%||8.85%||11.51%||7.47%||1||48,466.00|
|PFF||ISHARES S&P PREF STK INDX FN||US||Preferred Stock||3/30/2007||-0.31%||13.62%||20.98%||7.32%||0.85||1,306,296.00|
|PGF||POWERSHARES FIN PFD PORTFOLI||Global||Preferred Stock||12/1/2006||-0.89%||15.76%||23.95%||7.23%||0.94||592,615.00|
|PGX||POWERSHARES PREFERRED PORT||United States||Preferred Stock||1/31/2008||-0.07%||12.04%||16.66%||6.99%||0.84||561,229.00|
|GCE||CLAYMORE CEF GS CONNECT ETN||N.A.||High Div Closed End Funds||12/10/2007||-0.59%||10.67%||14.24%||6.75%||0.8||1,571.00|
After reviewing the list, a few themes are clear. Most prevalent are high yield bonds which invests in bonds that are below investment grade, preferred stock which are equity securities that have properties of an equity and a bond, and real estate which consists of REITS and mortgage companies. The ETPs list has both US and international exposure.
Surprisingly, all of these ETPs have higher year to date (ytd) returns then the S&P 500 which has increased by 6.52% YTD. The average return for the top 10 is 10.8%, which is 4.28% above the index. The 12 month dividend yield for the S&P 500 is approximately 1.8%.Conversely, the average 12month dividend yield for the top 10 is 8.14%, which is 6.34% above the index.
Beta is a number describing the relationship of its returns with that of the Market (S&P 500) as a whole. A beta of 1 means the security will move lock step with the market, and a security with a beta of less then one means the security is less volatile then the market. A negative beta means the security moves in the opposite direction of market. On average these top 10 have a beta of .82, which means it is 18% less volatile then the overall market.
In retrospect, an investor could have created an equal weight portfolio of the Top 10 dividend ETPs and would have received an 8.14% dividend yield, along with a return of 10.8% before taxes and commissions, plus the volatility the portfolio experienced should have been reduced by 18% in comparison with the overall market.
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