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 (NYSEArca: 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. [Stretching for Yield with ETFs]
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
For more information on dividend funds, visit our dividend ETFs category.
Max Chen contributed to this article.