Dividend ETFs On the Rise

Dividend-focused ETFs specialize in stocks that pay out extra income to shareholders. Rob Wherry for SmartMoney.com points out one of the latest trends is investing in dividend-paying stocks, mostly due to legislation introduced four years ago.

The Jobs and Growth Tax Relief Reconciliation Act cut the tax rate on qualified dividends 15% from up to 38.6%. ETF providers who offer dividend focused ETFs include WisdomTree, Barclays, PowerShares, State Street and Vanguard.

The iShares Dow Jones Select Dividend Index (DVY) has an annual gain of 16% over the last three years. Some of the high dividend-paying companies in the ETF include, AT&T (T), Bank of America (BAC), and Altria (MO). One of the broadest ETFs available is WisdomTree Total Dividend (DTD). It holds 770 stocks such as Exxon Mobil (XOM), General Electric (GE) and Citigroup (C).

DTD vs. DVY 1-yr chart:

Comments

[d_teller:]

There are lots of other CEF's (among the >1300 Exchange Traded Funds) that have qualified dividends, e.g., AOD and AGD from Alpine (based upon the ADVDX mutual fund's experience) and many others whose dividends are also partially qualified for the 15 % rate: JSN and others from Nuveen come to mind.

What happens to their share price and NAV's after 2010 if there won't be an extension of the qualified dividend rate makes me cautious to purchase those that have a > 5% premium, or whose costs + premium are > 5-6%.

2007 May 14 04:37 PM

[Gaylord Daniel:]

QUESTION: How and when are ETF dividends paid to share holders.
Thank You
Gaylord Daniel

2007 May 14 09:04 PM