Seeking Dividend Income Certainty In An Uncertain World

by: Richard Shaw

Unfortunately nothing is ever certain, but some things are more certain than others. Dividend payment streams are generally more certain (less volatile) than stock prices, as an example.

For investors seeking investment income, dividend stocks have become more important in a Federal Reserve suppressed interest rate environment.

One approach is to seek large-cap, mature, companies with long unbroken histories of dividend payments and dividend increases. An ETF that focuses on just that is SDY (S&P 500 Dividend Aristocrats index - via SPDR). SDY has 50+ stocks in its portfolio.

The Aristocrats are companies in the S&P 500 that have paid dividends for 25 or more consecutive years and have increased those dividends in each year. They are not all high yielding, but they all are steady payors. Some do drop out (GE (NYSE:GE) being an example due to 2008), and some new come on board, but overall, it's a stalwart group.

Other dividend ETFs have alternative methodologies for selecting dividend yield opportunities. Two of the more prominent ones by assets and trading volume are DVY (Dow Jones Select Dividends index via iShares) and VYM (FTSE High Dividend Yield index via Vanguard). DVY has about 100 stocks in its portfolio and VYM has about 400 stocks in its portfolio.

Four other dividend index ETFs of note are FVD, FDL, VIG and HDY. FVD tracks the Value Line Dividend index via First Trust. FDL tracks the Morningstar Dividend Leaders index via First Trust. VIG tracks the Vanguard/Mergent Dividend Achievers Select index via Vanguard. HDV tracks the Morningstar Dividend Yield Focus index via iShares.

When picking individual stocks, it may not be unreasonable to ask which stocks are in the S&P 500 Dividend Aristocrats to capture the mature, large-cap, long-term payment history and liquidity aspect; but there are also members of other dividend indexes that potentially capture some other important attributes of dividend stocks.

Toward that end for the do-it-yourself investor, this table lists all of the stocks in SDY and cross-references whether that stock is also a holding of DVY, VYM, FVD, FDL, VIG or HDV. Those stocks with multiple memberships could be a good place to begin a dividend stock search process.

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Disclosure: QVM does not own any ETF named in this article and does own some of the stocks listed in the table of SDY portfolio holdings, as of the creation date of this article (November 14, 2011).

Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.