Is PEY Still a Dividend Dynamo? Here’s Why It Could Survive Rising Rates

The market’s love affair with high-dividend stocks is under pressure as interest rates climb, leaving income investors scrambling for safe havens. But what about the Invesco High Yield Equity Dividend Achievers ETF (PEY)? This fund has long been a poster child for dividend-focused portfolios, but can it keep paying the bills amid today’s shifting tides? Let’s dig in—and decide whether it’s time to buy, hold, or bail.

Why Dividends Still Matter (Even in a Rising Rate World)

The Federal Reserve’s relentless rate hikes have savaged bond yields, pushing investors into dividend-paying equities for income. But here’s the rub: not all dividend stocks are created equal. The best performers in this environment are those with defensive sectors, strong balance sheets, and proven dividend growth—all of which PEY’s portfolio emphasizes.

PEY tracks the NASDAQ US Dividend Achievers™ 50 Index, which screens for companies with at least 10 consecutive years of dividend growth. This focus on consistency isn’t just a gimmick—it’s a survival tactic. While growth stocks falter in higher-rate environments, dividend stalwarts with stable cash flows can thrive.

Breaking Down PEY’s Portfolio: Where the Money Is

Let’s start with the numbers. As of April 2025, PEY’s top sector allocations are:
- Utilities (26.9%): Think power companies like Edison International (EIX) and Northwest Natural (NWN), which are insulated from economic swings.
- Financials (22.76%): Banks like First Interstate BancSystem (FIBK) and insurance firms, which can raise rates on loans and policies to offset rising costs.
- Consumer Staples (14.35%): Altria (MO), Universal Corp (UVV), and Verizon (VZ) round out the top holdings, offering steady demand even in downturns.

The top 10 holdings alone represent 28.07% of the fund, with Altria (MO) leading at 3.59%. This concentration isn’t a red flag—these are battle-tested companies with decades of dividend discipline.

The Case for PEY: 3 Reasons to Stay Bullish

1. Higher Yields Than Bonds: With a trailing 12-month dividend yield of 4.75%, PEY crushes the 3.5% yield on the 10-year Treasury. Bonds are losing the income battle, and this ETF’s edge could grow as rates stabilize.
2. Defensive Sectors at Its Core: Utilities and consumer staples are recession-resistant. Even if the Fed hikes rates further, these sectors are less sensitive to economic headwinds compared to tech or industrials.
3. Low Volatility Advantage: PEY’s beta of 0.73 means it’s 27% less volatile than the market. In a choppy environment, that stability is a feature, not a bug.

The Risks: Don’t Let Your Guard Down

No ETF is perfect. PEY’s risks include:
- Sector Overconcentration: 50% of its assets are in Utilities and Financials. If one sector stumbles—say, a banking crisis or regulatory crackdown—it could drag the whole fund down.
- Dividend Cuts: No company is immune to cutting dividends, especially in a recession. While PEY screens for consistency, past performance isn’t a guarantee.
- Expense Ratio: At 0.53%, it’s pricier than passive competitors like the iShares Core S&P U.S. Value ETF (IUSV, 0.04%). Every basis point counts in low-growth markets.

The Verdict: Buy, Hold, or Sell?

For income investors willing to tolerate some sector risk, PEY still has legs. Here’s how to play it:

BUY IF:
- You’re chasing yield and can stomach volatility in utilities and financials.
- You believe the Fed’s rate hikes are nearing an end, easing pressure on bond-sensitive sectors.

HOLD IF:
- You’re already invested. Don’t panic over short-term dips—PEY’s dividend growth history is a long-term bet.

SELL IF:
- You’re risk-averse and fear a sector-specific meltdown (e.g., a banking crisis or energy price collapse).
- You can find better yields elsewhere with lower fees.

Final Call: Act Now—Before Rates Climb Higher

Interest rates are a double-edged sword for income investors. While they’re squeezing bond returns, they’re also pushing investors into dividend stocks like PEY. This ETF isn’t a get-rich-quick scheme, but it’s a disciplined way to earn income while riding out the Fed’s rate cycle.

The data shows PEY is down 7.18% YTD, but its 5.5% 12-month return suggests it’s a patient investor’s play. Don’t let short-term noise distract you—this fund’s focus on dividend achievers is a tested strategy for income in uncertain times.

Bottom line: If you’re after steady payouts and can stomach some sector-specific risk, PEY is worth a chunk of your portfolio. Just don’t put all your eggs in one basket—and keep an eye on those utility stocks!

Investors should always consult with a financial advisor before making decisions. Past performance does not guarantee future results.