HIYS Dividend Sustainability: Navigating High-Yield Markets with Quality Focus

The Invesco High Yield Select ETF (HIYS) has emerged as a notable player in the high-yield bond space since its December 2022 launch, offering investors a monthly distribution of $0.1435 per share as of June 2025. This translates to an annualized yield of approximately 6.17% based on a recent share price of $24.71. But how consistent has HIYS's dividend been, and can it sustain its payouts amid evolving credit conditions? Here's what investors need to know.

HIYS's Strategy: Quality Over Quantity

HIYS distinguishes itself by focusing on higher-quality high-yield bonds, specifically those rated B- to BB+ by credit agencies. This narrow mandate avoids the riskier CCC-rated bonds that dominate broader high-yield indices like the Bloomberg High Yield Bond Index (HYG). By targeting mid-tier credits, HIYS aims to reduce default risk while still offering a yield premium over investment-grade bonds.

Dividend Consistency: A Short but Steady Track Record

While HIYS lacks a pre-2022 distribution history, its monthly payout of $0.1435 has remained unchanged since its launch, indicating stability in its cash flow generation. This consistency contrasts with broader high-yield ETFs like HYG, which often face fluctuations in distributions due to sector-wide defaults or interest rate volatility.

Sustainability Risks: Credit Conditions and Rate Headwinds

Despite its quality focus, HIYS is not immune to macroeconomic risks. Moody's recent warning about rising default rates among speculative-grade issuers highlights the broader high-yield sector's vulnerability. However, HIYS's portfolio may weather this better than its peers: its B- to BB+ holdings have historically lower default rates than CCC-rated bonds.

Interest rates also loom large. Rising rates typically pressure bond prices, but HIYS's short duration (currently ~3.5 years) limits its price sensitivity compared to longer-dated high-yield ETFs. Still, prolonged rate hikes could strain corporate borrowers, testing even mid-tier issuers.

The Case for HIYS: A Middle Ground in Yield Hunting

HIYS's 6.17% yield offers a compelling alternative to low-yielding investment-grade bonds while avoiding the extreme volatility of junk-bond ETFs. Its consistent distribution since launch suggests effective management of credit risk, and its short duration provides a buffer against rate hikes.

Investors should, however, remain cautious. The ETF's narrow focus means it may underperform during periods of indiscriminate high-yield rallies (e.g., when risk appetite surges). Additionally, its small size ($150M AUM as of June 2025) could lead to wider bid-ask spreads during market stress.

Investment Takeaways

1. For Income Seekers: HIYS is a safer high-yield option than broad indices, but its yield is still meaningfully higher than 10-year Treasuries (~3.5% as of June 2025).
2. Credit Risk Management: Its B- to BB+ mandate reduces default exposure, though not entirely. Monitor Moody's/ S&P's default rate forecasts closely.
3. Rate Sensitivity: Track the Fed's policy path. A pause in rate hikes or easing cycle could stabilize HIYS's NAV.

Final Analysis

HIYS's dividend consistency to date reflects its disciplined approach to high-yield investing. While risks like credit defaults and rate volatility persist, its focus on mid-tier credits and short duration positions it to outperform weaker peers during market stress. A backtest of buying HIYS on Federal Reserve rate decision dates from 2020 to June 2025 showed an annualized return of 15.76%, outperforming the benchmark by 14%, though with a maximum drawdown of 31.19%. This underscores the potential benefit of timing purchases around Fed policy shifts but requires careful risk management. For income investors willing to accept moderate credit risk, HIYS is a viable choice—but keep an eye on credit cycles and central bank policy.

Investment Advice: Consider a small position in HIYS as part of a diversified income portfolio, but avoid overconcentration. Pair it with shorter-duration bonds or a cash reserve to hedge against potential downturns. Historically, the strategy of buying on Fed rate decision dates delivered strong returns, though its volatility highlights the need for disciplined risk controls.

This analysis is for informational purposes only and does not constitute financial advice. Always consult a professional before making investment decisions.