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When High Yield Isn't High: After-Tax ETF Returns

Published Thu, 17 Oct 2019 23:20:02 -0400 on Seeking Alpha

Investors love anything claiming to be high yield.
For taxable investors, headline yields are an illusion and this post shows after-tax returns for popular high yield ETFs.
High Yield Bonds
Let’s start with the poster child for high yield ETF investing: iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG), the $18-billion corporate bond fund.
Graphs are based on current tax rates and assume an investor is in the highest federal bracket and lives in a state with high income taxes.

HYG has compounded at 5% since 2007. After-tax returns have been half of that because corporate bond interest is subject to federal and state tax. A high-income investor in a taxable account could have outperformed HYG with much less risk.
Dividend ETFs
As Meb Faber pointed out, dividend investing is like Coke (NYSE: KO) and Ferrari (NYSE: RACE) in that it has a great brand.
We’ve all seen charts showing the outperformance of dividend stocks. But this has partially been because dividend stocks have historically traded at a lower valuation than the overall market. That’s no longer the case.
Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) paid one $0.10 dividend in 1967 and Buffett joked, “I must have been in the bathroom when the decision was made.”
This chart shows returns for DVY, the iShares Select Dividend ETF:

There’s less tax drag than HYG since more of DVY’s return came from capital appreciation. Plus,... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
MFS INTERMEDIATE HIGH INCOME FUND 2.68   0.0 0.00 0.00 9.08
CS HIGH YIELD BOND FUND 2.58   0.0 0.00 0.00 8.87
PIONEER HIGH INCOME TRUST 9.29   0.0 0.00 0.00 8.72
WELLS FARGO ADV INCOME OPP FUND 8.20   0.0 0.00 0.00 8.61
ARES DYNAMIC CREDIT ALLOCATION FUND 15.08   0.0 0.00 0.00 8.56
CREDIT SUISSE ASSET MANAGEMENT INCOME FUND 3.16   0.0 0.00 0.27 8.52
WA HIGH INCOME FUND II 6.76   0.0 0.00 0.00 8.27
BLACKROCK CORPORATE HIGH YIELD FUND VI 10.76   0.0 0.00 0.00 8.01
FIRST TRUST STRATEGIC HIGH INCOME FUND II 12.35   0.0 0.00 0.00 7.77
BLACKROCK DEBT STRATEGIES FUND 10.78   0.0 0.00 0.00 7.63
NEUBERGER BERMAN HIGH YIELD STRATEGIES FUND 12.01   0.0 0.00 0.98 7.45
MASSMUTUAL CORP INV 16.54   0.0 0.00 1.20 7.27
SPDR BARCLAYS CAPITAL HIGH YIELD BOND ETF 108.94   0.0 0.00 6.07 5.58
ISHARES IBOXX $ HIGH YIELD CORPORATE BOND FUND 87.32   0.0 0.00 4.60 5.27
ISHARES DOW JONES SELECT DIVIDEND INDEX FUND 103.22   0.0 0.00 3.37 3.31
ISHARES BARCLAYS TIPS BOND FUND 115.82   0.0 0.00 2.15 1.85
ISHARES BARCLAYS AGGREGATE BOND FUND  
VANGUARD TOTAL BOND MARKET ETF  

MFS INTERMEDIATE HIGH INCOME FUND - CIF
MFS INTERMEDIATE HIGH INCOME FUND - CIF  


Older articles featuring Mfs Intermediate High Income Fund (CIF):
Weekly Review: High-Yield CEFs - Lack Of Significant Changes Among The Funds
Weekly Review: High-Yield CEFs - The Price Of The Benchmark Left In Red Territory
Spotlight On High Yield Credit Amid Declining Yields In Fixed Income Markets
Weekly Review: High-Yield CEFs - The Benchmark Is Close To Its Highest Annual Levels
Weekly Review: High-Yield CEFs - The Benchmark Increased Its Price
Weekly Review: High-Yield CEFs - The Recession Worries Left The Sector In Negative Territory
Weekly Review: High-Yield CEFs - PCF Announced Its Dividend For The Next 3 Months
How High Yield May Reduce Portfolio Risk
Weekly Review: High-Yield CEFs - Positive Performance For The Benchmark After The Rate Cut
Weekly Review: High-Yield CEFs - Another Slight Increase For The Sector

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