Looking for Income? The Case for Dividend ETFs

Includes: DES, DVY, PFM, SDY, VIG
by: Tom Lydon

Dividend-paying stocks and ETFs lagged in 2009, but don’t let that stop you from taking another look in 2010. Many companies are reinstating and even raising their dividends now that the economy is getting some color in its cheeks.

Investors are looking at equities more often now as a way to generate income. As the prospects of rising interest rates begin to threaten bond funds, dividend-focused companies are beginning to look like an answer for income-seeking investors.

John Spence for MarketWatch reports that last year, S&P 500 companies paid out $196 billion in cash dividends, a “massive” $52 billion decline from the $248 billion paid in 2008, according to Standard & Poor’s Index Services. Today, dividends have moved to center stage for investors seeking income.

Current income and long-term appreciation are both aspects of dividend ETFs from which investors will benefit.

When digging into dividend ETFs, consider the number of holdings and sector allocations in order to assess the level of risk and diversification. Use a trend following strategy to protect yourself if, as some say, stocks have rallied so much they’re primed for a pullback.

WisdomTree SmallCap Dividend (NYSEArca: DES)

iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY)

SPDR S&P Dividend Fund (NYSEArca: SDY)

Vanguard Dividend Appreciation (NYSEArca: VIG)

PowerShares Dividend Achievers Portfolio (NYSEArca: PFM)