One dividend ETF that has underperformed the market over the past year and has a current yield of 6.58% (as of 2.29.08) is State Street’s KBW Regional Banking ETF (Amex: KRE).
Already Beaten Down
KRE tracks an index of 50 regional bank stocks that have been pounded as part of the fallout of the subprime crisis. Over the past year, KRE is down over 30% compared to -5% for the S&P 500 in the same period.
The regional bank stocks in the KBW index are well known players with a solid track record. The top three KRE holdings as of 2.29.08 include Hudson City Bancorp (Nasdaq: HCBK ), Commerce Bancshares (Nasdaq: CBSH) and Bank of Hawaii (NYSE: BOH). Hudson City was named Best Managed Bank of 2007 by Forbes and is a regular table-pounding favorite of CNBC’s Jim Cramer. All 3 banks are generating positive cash from operations, are buying back shares or increasing dividends and have been minimally affected by the sub-prime problems of their larger cousins.
VISA Ownership Impact
The regional banks’ ownership of VISA USA has been a mixed blessing. Commerce Bancshares and Bank of Hawaii took earnings hits in 2007 as part of a legal settlement related to their partial ownership of VISA. The good news is that the legal issues are behind them and the banks stand to profit from Visa’s highly anticipated IPO. A similar IPO, Mastercard (NYSE: MA), has seen nearly a five-fold increase from the initial offering price in May 2006.
Dividend Yield Nearing 7%
State Street’s fact sheet had KRE’s dividend yield at 6.58% as of 2.29.08. KRE slid another 2% in today’s trading putting the dividend yield over 6.7%. If the ETF retests January’s 52 week low of $30.25, the dividend yield would be 7.4%.
For more information on KRE, see State Street’s website.
Although KRE offers diversification across 50 different bank stocks, it is still highly concentrated in….bank stocks. Consult your financial advisor for best results.