MSN Money on dividend-paying ETFs

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Includes: DVY, PEY
by: David Jackson

MSN Money's Dan Culloton analyzes the two dividend-focused ETFs, DVY and PEY. His conclusion:

Both of these funds still have a lot to prove. If pressed to choose between them, though, I'd lean toward iShares Dow Jones Select Dividend Index because it has the longer track record, more established and accomplished advisor, lower expense ratio, and more diversified portfolio. Investors should be careful with both, though. They each have a whiff of the Dogs of Dow about them. That once-popular strategy, which involves buying the highest-yielding stocks in the Dow Jones Industrial Average, has been discredited in recent years because it failed to avoid stocks that had high yields because their businesses were in peril and their stocks plummeting. Requiring histories of dividend increases may help these ETFs avoid such pratfalls, but, before considering either of these ETFs, income-seeking investors still might want to investigate funds that apply more rigorous qualitative research in their search for yield.

For example, Vanguard Equity-Income (MUTF:VEIPX) offers investors a portfolio crafted by three seasoned subadvisors practicing time-tested strategies for identifying cheap stocks with above-average dividend payouts. It also charges a lower expense ratio than both of these ETFs. Meanwhile, Franklin Rising Dividends A (MUTF:FRDPX) has used strict dividend growth and valuation screens, rigorous fundamental research and a buy-and-hold approach to produce competitive absolute returns with below-average volatility over the last 15 years.

Full article here.