Sometimes what’s behind a very high dividend yield is truly surprising.
Last Thursday, ETF.com posted an article about the five highest-yielding ETFs. Immediately, the first one on the list, the db X-trackers MSCI Brazil Hedged Equity ETF (DBBR | D-42), jumped out at me.
The article listed DBBR with a 12.3 percent yield. When I looked up DBBR in our ETF Finder, it showed the fund does in fact have a trailing 12-month (TTM) distribution yield close to 12 percent.
But don’t be fooled by the fund’s “juicy yield,” as there’s much more to the story behind this yield.
DBBR’s “yield” over the past year has more to do with gains from its forward-currency contracts than dividends paid from its underlying holdings. Brazilian securities are actually yielding closer to 4 percent.
The fund’s “portfolio yield” is 3.87 percent, roughly in line with the iShares MSCI Brazil Capped ETF’s (EWZ | C-98) 3.93 percent yield. This doesn’t surprise me, since DBBR tracks a very similar MSCI index as EWZ, simply with a forward-currency contract overlay.
12 Percent Yield Calculation
We calculate our TTM distribution yield by taking all the distributions from the fund (including income, short-term and long-term gains) over the past 12 months and dividing that by the fund’s current net asset value (NAV).
According to Deutsche’s website, DBBR made a huge “ordinary income” distribution of $1.82142 on Dec. 27, 2013, but made no distributions on July 10, 2014 (DBBR makes semiannual distributions).
If you divide $1.82142 by $14.81 (the fund’s NAV on the day the data was pulled, July 2, 2014), you get 0.12298, which gives DBBR this 12.3 percent yield.
Now here’s the real kicker. If this yield were pulled a few days earlier—before DBBR traded ex-dividend on June 27, 2014—the yield for DBBR would have shown as 20 percent!
That’s because DBBR traded ex-dividend a year earlier on June 27, 2013, and paid out $1.16533 a share on July 10, 2013. Combining this distribution with the massive distribution in late December 2013 would have given you a 12-month total distribution of $2.98675.
So, if you divide $2.98675 by $14.96 (NAV on June 26, 2014), you get 0.199649, or 20 percent. Voila!
Now that we know the calculation behind this yield, let’s dive into why DBBR paid out such massive distributions in 2013 even though its constituents are yielding “only” 3.87 percent.