With interest rates hovering near record lows for the
foreseeable future, dividend-paying stocks and
have become all the rage.
But there's no point in buying them if their prices fall and
wipe out all the income earned from dividends. So in looking for
ETFs with juicy dividend yields, we hand-picked ones that are
showing strong uptrends, which increases the probability they'll
Here's a look at five ETFs yielding 8% to 11% that are also
trading above both their 50- and 200-day
. What's more, they all sport high
IBD Accumulation-Distribution Ratings
, which runs on an A to E scale with A being highest and E
lowest. This shows big institutional investors are gobbling up
shares and holding on to them.
However, three of them have rather weak IBD Relative Strength
Ratings in the low 40s, which means their price action lags about
60% of the market. A safe way to invest in these is to use the
200-day moving average as a stop loss: sell if the ETF breaks
below that key line and buy it back when it regains the 200-day
While all of these ETFs currently show fat dividend yields,
investors must understand this doesn't guarantee future payments
as actual yields can vary monthly or quarterly.
1.Peritus High Yield ETF (
12-month yield: 8.37%.
IBD Ratings: Relative Strength 41, Accumulation-Distribution
This actively managed ETF returned a robust 14.7% last year
after tacking on merely 2.7% in 2011. Bank of America Merrill
Lynch says investors should expect high single-digit returns from
high-yield bonds this year. With interest rates at historic lows,
an uptick in rates could send bond prices tumbling. Interest
rates and bond prices move in opposite directions.
"If five-year Treasury yields were to rise only 100 bp (basis
points) (or 1%), a range they have covered three times in the
past three years, investors in that bond would lose eight years
of promised coupon," BofA Merrill Lynch wrote in a "High Yield
Strategy" report. "Investment-grade credit does somewhat better
in this scenario, but still stands to lose two years of income.
The high yield market, with its meaningful negative spread beta
to Treasuries, stands to almost fully offset such a move with
spread tightening. Tighter spread and higher quality segments in
high yields are not going to be able to fully offset such rate
High-yield bond spreads tend to ebb and flow with the
expectation of default rates among high-yield issuers, who are at
higher risk of default or bankruptcy because of high debt loads.
BofA Merrill projects a U.S. default rate of 2.5% this year, down
from 3% last year.
2.PowerShares KBW High Dividend Yield Financial (
12-month yield: 9.02%.
IBD Ratings: Relative Strength 44, Accumulation-Distribution
This ETF holds 36 companies engaged in banking, insurance and
other financial services. The largest holdings includeAmerican
Capital Agency (
), yielding 16%;BGC Partners (
), yielding 13.5% andAnnaly Capital Management (
), yielding 12%.
KBWD could be looked upon as a value play. It trades at 10.6
times forward earnings vs. 13 for the S&P 500. The ETF trades
at 1 times book value and 1.68 times sales. By comparison, the
S&P trades at 2 times book value and 1.3 times sales, while
3.Guggenheim Solar (TAN).
12-month yield: 9.18%.
IBD Ratings: Relative Strength 62, Accumulation-Distribution
The outlook for solar energy looks sunny as Germany slowly
replaces nuclear energy with wind and solar.
BofA Merrill Lynch in its "2013 Energy Outlook" stated: "Over
the medium term, there is a big push in growing renewable
generation capacity further, partly to replace nuclear
"Renewable capacity appears set to expand strongly over the
coming years, with 28 gigawatt solar and 16 GW wind capacity
growth expected between 2011 and 2020. That means the share of
renewables in total capacity could rise to 58% of capacity.
"German gas plants are severely underutilized as the country
is producing around 13% of its electricity through green
technologies like wind or solar."
TAN's top holdings includeFirst Solar (FSLR), which in the
past has shown up in
IBD's screens of highly rated stocks
4.Market Vectors Mortgage REIT ETF (MORT).
12-month yield: 10.96%.
IBD Ratings: Relative Strength 55, Accumulation-Distribution
MORT's portfolio trades at merely 9 times forward earnings, 1
times book value and 3 times sales. This 25-stock ETF is a play
on Annaly Capital, which accounts for 17% of assets, American
Capital Agency weighted 13% andTwo Harbors Investment (TWO)
Mortgage real estate investment trusts lend money for real
estate purchases and buy loans backed by real estate. REITs pay
at least 90% of their income to shareholders as a dividend. The
major risk of investing in mortgage REITs is falling interest
rates, which spurs homeowners to refinance their loans at lower
rates. With rates already at historic lows, they're highly
unlikely to fall further.
UBS E-TRACS 2x
Long Alerian MLP Infrastructure ETN (MLPL).
12-month yield: 10.93%.
IBD Ratings: Relative Strength 41, Accumulation-Distribution
UBS announced it's paying investors, as of Jan. 14, $1.14 a
share on Jan. 23. That amounts to an annualized yield of
MLPL basically doubles the returns of the underlying index,
composed of 25 energy infrastructure master limited partnerships.
These companies run toll-road type businesses, making money from
transporting, storing and processing natural gas and oil. Their
income depends on volume, not commodity prices, so they're much
less volatile than energy producers and explorers. MLPs are
required to pay 90% of their income to shareholders or
"But this also means that they must borrow money to finance
new projects," Abby Woodham, an analyst at Morningstar, wrote in
a report. "As long as interest rates remain low, MLPs will be
able to finance new projects and grow."
MLPs' prospects are tied to the natural gas production and
demand. Woodham added: "Luckily, the future looks bright on this
count: The U.S. produces more natural gas than any other country
in the world, and production grew by a healthy 7.7% last
"Worldwide natural gas consumption went up by 2.2% in 2011,
despite significant declines in consumption in the EU. Gains in
China were particularly robust, as demand increased by