Which ETF Has the Highest Dividend Yield in 2025? And Is It a Buy Now?

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4 days ago

Exchange-traded funds typically hold baskets of stocks, but trade like individual equities.
The Invesco KBW Premium Yield Equity REIT ETF focuses on real estate investment trusts.
REITs are required to distribute most of their profits via dividends.
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Exchange-traded funds (ETFs) have become quite popular in their three-plus decades of existence. There are now more publicly listed ETFs than there are individual stocks on the New York Stock Exchange. Similar to mutual funds, ETFs usually hold baskets of stocks or other assets, but they trade similarly to stocks. They are highly liquid, and owning them can be a more tax-efficient way to invest than holding mutual funds.
Each ETF is designed around a theme -- and that could be anything from tracking an index to focusing on one industry or type of stock. Many have portfolios that are intended to produce reliable dividends for income investors. But which ETF has the highest yield in 2025?
At this point, investors can find ETFs to suit pretty much any investment strategy. Some track indexes, others are actively managed, and many deploy complex options strategies or leverage up on crypto bets. However, because many of those strategies result in funds that are not appropriate as long-term holdings, I'm excluding ETFs that use complex options strategies or make big crypto bets from my search.
Within the field of choices that remain, the highest-yielding ETF at the moment is the Invesco KBW Premium Yield Equity REIT ETF (NASDAQ: KBWY). It invests solely in real estate investment trusts (REITs) -- companies with special structures that enjoy tax advantages as long as they abide by the required policies. For instance, a REIT must distribute 90% of its taxable income to its shareholders each year through dividends. REITs also must invest at least 75% of their assets in real estate or cash, and receive at least 75% of their total income from real estate revenue, like rent, mortgage interest, real estate loans, or the sale of real estate assets.
Because of that payout requirement, REITs are viewed as strong dividend investments. However, their earnings and yields can fluctuate as the real estate market progresses through economic and interest rate cycles. KBWY's dividends have had their ups and downs, but it has had a strong average yield since launching in 2010. Currently, its yield is over 9.6%.
As of July 7, the ETF's top 10 holdings by weight were:
KBWY ETF Top 10 Holdings
Portfolio Weight
1. Brandywine Realty Trust (NYSE: BDN)
6.27%
2. Innovative Industrial Properties (NYSE: IIPR)
6.20%
3. Community Healthcare Trust (NYSE: CHCT)
5.26%
4. Park Hotels & Resorts (NYSE: PK)
4.51%
5. Global Medical REIT (NYSE: GMRE)
4.43%
6. Global Net Lease (NYSE: GNL)
4.28%
7. Healthcare Realty Trust (NYSE: HR)
4.22%
8. Easterly Government Properties (NYSE: DEA)
3.94%
9. Apple Hospitality REIT (NYSE: APLE)
3.88%
10. RLJ Lodging Trust (NYSE: RLJ)
3.85%
Source: Invesco.
Brandywine Realty Trust focuses on urban and municipal transit-oriented developments. Innovative Industry Properties leases properties to companies in the cannabis sector. Community Healthcare Trust leases properties to hospitals and other healthcare providers, primarily in markets outside of major cities.
Few ETFs that don't make use of super-aggressive investment strategies can match KBWY's yield. But in the world of dividends, investors should always take a skeptical approach to an unusually high yield -- sometimes, they're too good to last. And sometimes, they signal that an investment has other problems.
For example, since its inception, KBWY's net asset value (NAV) is only up about 4%. Now, part of that weak result can be attributed to the pandemic, which changed the ways people live and work, likely forever. As a result, many real estate stocks and REITs got hit hard and haven't recovered. That's reflected in KBWY's five-year performance. A lower interest rate environment, which many expect to start to materialize later this year, could help KBWY by lowering REITs' borrowing costs and improving conditions for the businesses that are leasing space.
Lower benchmark interest rates also reduce the amount that investors can earn from low-risk assets, which makes dividend investments more appealing.
However, one thing that worries me about KBWY is its high exposure to the office space and healthcare segments, both of which have been shaky since the pandemic, and which are still very much trying to find their footing.
Although KBWY's yields have been attractive since its inception, the dividend is likely to remain volatile, and it likely won't be this high forever. KBWY will keep churning out passive income for its shareholders, but I think there are more stable options out there that might be more prudent for income-focused investors.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Easterly Government Properties and Innovative Industrial Properties. The Motley Fool has a disclosure policy.
Which ETF Has the Highest Dividend Yield in 2025? And Is It a Buy Now? was originally published by The Motley Fool