5 High Yield, Low Volatility ETF Plays
Tue, Nov 20, 9:15 AM ET, by Michael Johnston
Of course, many high yielding asset classes come with considerable risk, and considering only the return opportunity could be a foolish move in the current environment. To put all the high yielding opportunities out there on equal footing, we compared both distribution yield over the past 12 months and volatility during the past 200 trading days — rough approximations for return and risk profiles [Download How to Pick The Right ETF Every Time].
Specifically, we:
- Took approximately 80 ETFs (and ETNs) from high yielding asset classes, including dividend paying stocks, junk bonds, MLPs, and preferred stocks
- Used the ETF Analyzer to generate 12 month dividend yield and 200 day volatility for each
- Calculated dividend yield as a percentage of volatility–basically, the yield offered relative to the risk incurred
The results were all over the board, as can be expected in a somewhat turbulent environment (it should be noted that these figures change daily, and are inherently backward looking). But some interesting trends emerged from this analysis, highlighting a few ETFs that offer up attractive yields relative to the volatility (i.e., risk) they come with [see also Monthly Dividend ETFdb Portfolio].
Preferred stock jumped out as the clear winners from this exercise; these securities don’t offer the highest yields out there by any measure, but they make relatively attractive payouts without exposing investors to significant volatility. In terms of getting the most dividend bang for your volatility buck, preferred stock ETFs stand head and shoulders above the competition right now [see Hunt For Yield: How Do All The High-Yielding ETFs Stack Up].
PSK isn’t the most popular preferred stock ETF, but stands out as an opportunity with a meaty yield with limited downside:
- 12-Month Dividend Yield: 6.4%
- 200 Day Volatility: 3.8%
- YTD Return: 12.7%
There are a handful of additional preferred stock ETFs making attractive payouts with very low volatility now, including PFF and PGX.
2. PowerShares High Dividend Yield Financial Portfolio (KBWD)
You may be surprised to see a financial ETF on this list given the reputation for volatility in this sector. But KBWD has been producing pretty solid returns and offering up a hefty dividend yield while exhibiting relatively low volatility recently [see Financials Free ETFdb Portfolio].
- 12-Month Dividend Yield: 10.9%
- 200 Day Volatility: 12.6%
- YTD Return: 9.8%
3. iShares FTSE NAREIT Mortgage REITs Index Fund (REM)
Mortgage REITs can be extremely risky propositions, given their use of leverage to achieve exposure to mortgages. But this corner of the REIT market offers a huge yield in the current environment, and has been able to do so without experiencing significant volatility.
- 12-Month Dividend Yield: 10.6%
- 200 Day Volatility: 15.1%
- YTD Return: 20.0%
Market Vectors offers a similar ETF, MORT, that has similarly produced a solid dividend yield with relatively low volatility recently.
4. Global X SuperDividend ETF (SDIV)
For investors looking to pick out the highest yielding stocks from around the globe, SDIV could be an interesting option. The underlying portfolio consists of 100 high yielding stocks, each weighted at 1%. The result is a high basket with an aggregate distribution yield in the neighborhood of 8%. Though this approach has the potential to expose investors to more speculative companies, the risk has been relatively low over the past year given the hefty yield opportunity [see also Inside The SuperDividend ETF: Q&A With Bruno del Ama].
- 12-Month Dividend Yield: 7.8%
- 200 Day Volatility: 12.7%
- YTD Return: 8.1%
5. Cushing MLP High Income Index ETN (MLPY)
It’s probably no surprise that MLPs are on this list; these energy-related entities are a source of attractive payouts thanks to unique tax incentives, and maintain relatively stable operations that limit volatility (though they endured a steep post-election sell-off). There are a handful of MLP ETFs and ETNs available (the distinction is an important one in this case) that offer yields in excess of 6%–a pretty good haul right now. MLPY, as the name suggests, offers one of the higher payout ratios among MLPs. And it manages to do so without an overwhelming amount of risk [see our Energy Bull ETFdb Portfolio].
- 12-Month Dividend Yield: 7.9%
- 200 Day Volatility: 13.2%
- YTD Return: 0.7%
[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]
Disclosure: No positions at time of writing.
SDI Glossary: "Dividend" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "iShares" Definition
SDI Glossary: "Mortgage REIT" Definition
SDI Glossary: "Stock" Definition
SDI Glossary: "Yield" Definition
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