Boosting a Portfolio With Dividend ETFs

by: Tom Lydon

Dividend-paying stocks have always found a home in portfolios, especially after a bear market, when investors want a reliable source of income. A good way to gain exposure to the variety of dividend-paying companies out there is through a dividend exchange traded fund.

“After a bear market, people get nervous and concerned,” remarks Howard Silverblatt, Standard & Poor’s senior index analyst, and investors are seeking shelter by turning to dividend stocks, reports Josh Lipton for Minyanville. [Dividend ETFs: Aristocrats vs. Achievers.]

The decision to turn to dividend stocks makes sense since dividend payers tend to outperform non-dividend payers over the long-term, Silverblatt adds. For instance, if an investor put $10,000 in two portfolios covering the S&P 500, one with dividend payers and one without, in 1979, the dividend-paying portfolio would be now worth $348,879 while the non-paying portfolio would be worth $232,368. [What You Should Know About Dividend ETFs And Taxes.]

Dividend payers keep a portfolio less volatile over the long haul since they don’t surge during good times or implode during down times.

Some companies choose not to pay a dividend because they don’t have the necessary profits to do so. Josh Peters, editor of Morningstar’s DividendInvestor newsletter, said that financial services companies “were huge payers of dividends but they had to cut those dividends, either because they needed to shore up their capital position or because regulators forced them to do it.”

Then there are some tech companies that are sitting on mountains of cash but are loath to relinquish it as dividends. Instead, the money is used to “develop new products by hiring smart people, and putting them at a desk,” comments Peters.

Among the many dividend-paying ETFs available today include these:

  • SPDR S&P Dividend Fund (NYSEARCA:SDY)
  • Vanguard Dividend Appreciation (NYSEARCA:VIG)
  • PowerShares Dividend Achievers Portfolio (NASDAQ:PFM)
  • PowerShares High Yield Equity Dividend Achievers Portfolio (NASDAQ:PEY)
  • PowerShares International Dividend Achievers (NASDAQ:PID)
  • WisdomTree LargeCap Dividend (NYSEARCA:DLN)
  • First Trust Value Line Dividend (NYSEARCA:FVD)
  • Claymore/S&P Global Dividend Opportunity (NYSEARCA:LVL)

Max Chen contributed to this article.

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