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.
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|
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