5 ETFs Yielding 8%-11% With Big Institutional Buying


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With interest rates hovering near record lows for the foreseeable future, dividend-paying stocks and ETFs 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 keep rising.

Here's a look at five ETFs yielding 8% to 11% that are also trading above both their 50- and 200-day moving averages . 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 line.

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 ( HYLD ).

12-month yield: 8.37%.

IBD Ratings: Relative Strength 41, Accumulation-Distribution B+.

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 moves, however."

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 ( KBWD ).

12-month yield: 9.02%.

IBD Ratings: Relative Strength 44, Accumulation-Distribution B.

This ETF holds 36 companies engaged in banking, insurance and other financial services. The largest holdings includeAmerican Capital Agency ( AGNC ), yielding 16%;BGC Partners ( BGCP ), yielding 13.5% andAnnaly Capital Management ( NLY ), 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 yielding 2.3%.

3.Guggenheim Solar (TAN).

12-month yield: 9.18%.

IBD Ratings: Relative Strength 62, Accumulation-Distribution A+.

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 capacity.

"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 B.

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) weighted 5%.

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.

5. UBS E-TRACS 2x Long Alerian MLP Infrastructure ETN (MLPL).

12-month yield: 10.93%.

IBD Ratings: Relative Strength 41, Accumulation-Distribution B+.

UBS announced it's paying investors, as of Jan. 14, $1.14 a share on Jan. 23. That amounts to an annualized yield of 12.28%.

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 unitholders.

"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 year.

"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 21.5%."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , ETFs
More Headlines for: AGNC , BGCP , HYLD , KBWD , NLY

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