Why Dividend ETFs Can Help You Through Hard Times

To combat a recessionary climate, a strategy many investors use is investing in dividend-paying stocks and ETFs. These stocks and funds give income from the dividend, and also give you the chance to benefit from any returns.

Stocks are still a long way off from their 2007 highs, however, many investors may find the comfort of dividend income enough to tide them over until the market recovers. Dave Kansas for The Wall Street Journal reports that there are other reasons for investing in dividend-paying companies other than the extra capital:

1. Companies that can maintain or even increase a dividend payout are showing their strength. Some companies have reduced or eliminated their dividends.
2. In the wake of various accounting scandals, a steady dividend is proof that a company is actually making the money it says it is making. There is nothing that accounting numbers can hide to fake a dividend payout.
3. Since bond yields are at low levels, dividend yields are now competitive. Most economists expect bond yields to stay depressed for the time being, too.

Among the stellar companies that have managed to up their payout rather than decrease them include General Mills (GIS), Colgate-Palmolive (CL) and Lockheed Martin (LMT), to name a few.

When searching for a good dividend-paying company, Kansas suggests a couple things:

• The dividend yield of a major average, such as the Dow Jones Industrial Average, is a good starting point for deciding which dividend-paying company to add to your portfolio. You would eye stocks that outpace the dividend yield of the average.
• Watch for stocks that pay a good yield, which is calculated by dividing the annual dividend by the share price.
• We’d also add here that investors can look at dividend-paying ETFs. The providers are constantly in search of these high-quality stocks, saving investors time and giving them diversification. Some dividend-paying ETFs (though there are many, many others):

• SPDR S&P Dividend (SDY): up 6.3% year-to-date; yields 5.3%

• First Trust Morningstar Dividend Leaders (FDL): up .40% year-to-date; yields 5.1%

• WisdomTree Dividend ex-Financials (DTN): up 8.5% year-to-date; yields 5%

Keep in mind that there are many dividend-paying stocks nestled into other ETFs, as well.

Comments

[fgh_21:]

how did you cacualte the yeilds ?
For SPY 5.3 % , the last dividend rate was 0.5182 and stock price was about 92 around June 2009. Thus , the yeilds was only 0.5% !

Aug 13 10:58 PM

[jayb:]

he said SDY, not SPY

Aug 14 03:59 PM

[gjg49:]

fgh_21:
jayb is correct..you looked at the wrong etf.
additionally, the last dividend for spy was 0.518, but you also need to look at the frequency of dividend payments. spy pays a dividend 4 times per year, so the annual yield is approximately 2%, not 0.5%

Aug 15 04:53 PM

[fgh_21:]

thanks for your expliantion.
Would you help me to know how to caculate the dividend yield.
For example with SPY as below.
Payable Date Ex Date Distribution Amount Long Gain Short Gain
7/31/2009 6/19/2009 0.5182 0 0
4/30/2009 3/20/2009 0.5614 0 0
1/30/2009 12/19/2008 0.7193 0 0
10/31/2008 9/19/2008 0.6909 0 0

how do I caculate the dividend yield according the above figures ?
thanks

Aug 16 11:58 PM

[Anonymous 2:]

To what extent have these "growing Dividend" ETF's generated "Growing dividends" since inception based on a rolling 12 month payment of monthly or quarterly dividends?
I believe this statistic should be provided by all ETFs based on their record of dividend of income from their underling holdings - and NOT including any "distributions" from short or long term capital gains from trading.
Does everyone agree with this?
and if so, I'd appreciate a site from which I could get such data to compare

Aug 17 03:00 PM