The Invesco KBW Premium Yield Equity REIT ETF (NYSEARCA:KBWY) offers a 9% yield from a $251 million fund focused on higher-yielding real estate investment trusts. The ETF generates income by holding 30+ REITs that pay dividends from rental income across healthcare, industrial, hospitality, and office properties.
How KBWY Generates Its 9% Yield
KBWY tracks an index of small and mid-cap REITs selected for above-average dividend yields. Unlike option-based income strategies, this ETF earns distributions by collecting dividends from underlying REIT holdings and passing them through to shareholders monthly. The fund maintains no leverage and charges a 0.35% expense ratio.
The high yield reflects a deliberate strategy of concentrating in smaller REITs that offer higher dividend rates than large-cap peers. This approach creates a fundamental tradeoff for investors: substantial current income in exchange for sacrificed long-term capital appreciation. The performance gap tells the story clearly – KBWY delivered just 16% in total returns over the past decade while the Vanguard Real Estate ETF generated 65%, demonstrating how chasing yield can undermine wealth building.
Top Holdings Present Dividend Sustainability Concerns
The ETF’s dividend safety depends heavily on its top three holdings, which together represent nearly 17% of assets. Innovative Industrial Properties (NYSE:IIPR) represents the fund’s largest position and presents the most significant risk to dividend sustainability. The cannabis-focused REIT’s 15% yield signals trouble rather than opportunity, as the company’s financial structure reveals why such generous payouts rarely last.
The operational reality behind these numbers reveals deeper problems: one in five tenants has fallen behind on rent payments, creating cash flow pressure that forced management to freeze the quarterly dividend at $1.90 since mid-2024. When a REIT stops growing its dividend despite claiming high yields, it signals the payout may not survive the next downturn. The company’s 180% payout ratio – distributing far more than it earns – confirms these sustainability concerns.
Community Healthcare Trust (NYSE:CHCT), the second-largest holding, yields 11% but reports negative net income while maintaining its dividend. The company’s operating cash flow provides only minimal coverage of its dividend obligation, falling below the threshold that typically signals financial strength and raising questions about payout sustainability.
Gladstone Commercial (NASDAQ:GOOD), the third-largest position, faces the tightest constraints among the top holdings. The company paid out more than it generated during 2024, with operating cash flow falling short of covering its annual dividend commitment.
The Bottom Line on KBWY’s Dividend
KBWY’s 9% yield is legitimate but comes with elevated risk. The ETF’s concentration in smaller REITs with stretched payout ratios and declining distributions, which fell roughly 5% from 2024 to 2025, signals caution. Tenant defaults at the largest holding and negative earnings at the second-largest position underscore vulnerability to economic downturns or rising interest rates.
For investors seeking REIT exposure with more stability, consider larger-cap REIT ETFs as alternatives. These funds typically offer lower yields (around 3-4%) but invest in larger, financially stronger REITs with better dividend coverage, broader diversification across 140+ holdings, and lower expense ratios.
Top Gaining Stocks
Top Losing Stocks