Friday, March 31, 2006

PEY changes over to monthly dividends.

Powershares has changed the dividend policy for their PowerShares High Yield Equity Dividend Achievers ETF (AMEX: PEY) from quarterly dividends to monthly dividends. The new distribution policy will take place on May 1, 2006.

PEY is powershares's highest yielding US dividend exchange traded fund. PEY replicates the Mergent Dividend Achievers 50 Index of the top 50 highest yielding stocks that have raised dividends for over 10 consecutive years. This index has most of it's components in the financial and utility sectors. According to Mergent the index has a yield of 3.92%.

My guess is that Powershares is making the change to differentiate PEY (the second largest dividend ETF) from DVY (The largest with over $6.7 Billion in assets).PEY is the first stock market ETF to make monthly cash distributions. The only other exchange traded funds offering monthly dividends are the iShares Bond ETFs (SHY,IEF,TLT,AGG,LQD). Treasury bond income funds have been facing competition from online high yield savings accounts which pay monthly interest at competative rates. For example VirtualBank eMoney Market pays 4.60% APR and has FDIC insurance (backed by the full faith and credit of the US government. These savings and money market accounts do not charge brokerage or redemption fees, like mutual funds do.

This change in dividend policy will remove one of the few competitive advantages of income mutual funds over ETFs, which is that most income mutual funds pay out monthly distributions. Monthly payouts help people who depend on their investments to pay living expenses, to budget for those expenses. I expect that other income oriented ETF's will also switch over to monthly distributions.

Most investors are not as single minded as John D Rockefeller who once said: "Do you know the only thing that gives me pleasure? It's to see my dividends coming in." Monthly distributions are psychologically appealing; they let shareholders enjoy the pleasure of seeing dividends coming in 12 times a year.

Board Approves Change in Distribution Policy for PowerShares High Yield Equity Dividend Achievers(TM) Portfolio

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