Sector ETFs versus high-dividend ETFs (DVY, PEY)

Although Roger Nusbaum dismisses John Spence's article on dividend-paying ETFs, it does get one thing right: if you're going to consider high-dividend ETFs, you need to think about sector ETFs as well as the specialized high-dividend ETFs such as DVY and PEY. Here's why.

There are two specific problems with the high-dividend ETFs:

1. Their expense ratios are relatively high.
2. Investors may be unaware that these ETFs have significant concentration in certain sectors.

Buying ETFs that track sectors that contain high-dividend paying stocks could solve both these problems. 

First, if you put 40% of your portfolio into utilities, financials and REITs using sector ETFs, at least you're aware of what you're doing. (I certainly wouldn't recommend it, by the way.) In contrast, many people who buy DVY and PEY won't be aware of the sector concentration of those ETFs.

Second, sector ETFs such as the Select Sector SPDRs have lower expenses than DVY and PEY. Here' s the comparison:

• Select Sector SPDRs: "The average expense ratio for Select Sector SPDRs is 0.25%", according to the SPDR's website.
• DVY: 0.40%
• PEY: 0.50%

More on DVY and PEY here.