Invesco KBW Premium Yield Equity REIT ETF (KBWY): The Highest-Yielding Dividend ETF in 2025?

Exchange-traded funds (ETFs) have seen a surge in popularity over the past thirty years, now outnumbering individual stocks listed on major exchanges like the NYSE. Similar to mutual funds, ETFs typically consist of baskets of various stocks or assets but offer the convenience and liquidity of stock trading. They are also considered to be more tax-efficient than mutual funds, making them a popular choice for diverse investment portfolios.

What Makes ETFs Unique?

Each ETF is built around a specific theme — it might track a particular index, target a single sector, or emphasize a certain investment approach. Some ETFs, especially those focused on generating dividends, can be attractive for income-seeking investors. But which ETF stands out in terms of dividend yield for 2025?

KBWY: A Focus on Real Estate Investment Trusts (REITs)

Amid the vast landscape of ETFs available today, the Invesco KBW Premium Yield Equity REIT ETF (KBWY) currently leads in yield among traditional, non-leveraged options. KBWY invests exclusively in real estate investment trusts (REITs), which are specialized companies required to distribute at least 90% of their taxable income to shareholders as dividends. They must also invest the majority of their assets in real estate and generate most income from property-related sources such as rent and mortgage interest.

Because of these requirements, REITs are favored for their stable dividend payouts. However, the performance of REITs — and consequently, ETFs like KBWY — can fluctuate with trends in the real estate market and macroeconomic conditions. While KBWY's dividend payments have varied over time, its average yield has remained robust since its 2010 launch. Currently, KBWY boasts a yield of over 9.6%, positioning it among the highest for traditional ETFs.

KBWY’s Top Holdings and Exposure

As of July 7, KBWY’s top holdings included:

• Brandywine Realty Trust: Specializes in urban development and transit-oriented real estate.
• Innovative Industrial Properties: Leases facilities to businesses in the cannabis industry.
• Community Healthcare Trust: Owns properties leased to healthcare providers, particularly outside major metropolitan areas.

These holdings showcase KBWY’s diversification across real estate niches, from office buildings to healthcare and specialized sectors.

Should Investors Consider KBWY for Income?

Among ETFs without leveraged or aggressive options strategies, few match KBWY’s yield. However, it’s essential for investors to approach high-yielding funds with caution. Elevated yields can sometimes reflect underlying risks or market challenges in the ETF’s holdings.

For instance, KBWY’s net asset value has risen just about 4% since inception, a modest figure largely influenced by the pandemic’s disruptive effect on real estate markets. Office and healthcare properties — two of KBWY’s largest exposures — have faced ongoing uncertainty since 2020. Recovery in these segments remains incomplete, which may contribute to continued volatility in KBWY’s dividend payouts.

Looking ahead, a decrease in benchmark interest rates could benefit REITs by reducing borrowing costs and making income-producing investments like KBWY more appealing compared to low-yield savings products. Nonetheless, the fund’s heavy weight in sectors still grappling with post-pandemic adjustments suggests that volatility is likely to persist.

Bottom Line

KBWY’s high yield can be enticing for income-focused investors, but it comes with above-average risk and uncertainty, mainly due to its concentration in office and healthcare REITs. Investors seeking stable, long-term income may want to compare KBWY with other ETF alternatives that offer more consistent performance and lower exposure to these volatile real estate segments.

This content is for informational purposes only and does not constitute financial advice.