Differentiating Dividend ETFs

by on January 23, 2013 | ETFs Mentioned:

With Treasury interest rates expected to stay at near-zero levels for the foreseeable future, many investors have found it challenging to secure meaningful yields from asset classes that were once the core of income strategies. While finding high-yielding investments is a difficult task, it certainly isn’t impossible. There are dozens of dividend ETFs (and ETNs) that offer potential for some big payouts [check out Dividend.com's Money Management Tips Center].

From ETFs linked to dividend-weighted indexes to those that screen components by consistency of distributions, the choices are numerous–and increasingly popular [see 25 Dividend ETFs For Yield Hungry Investors].

Two Key Strategies

The graphic below compares two dividend income strategies; the first three ETFs focus on firms with consistent payouts that have grown over the last decade or more, while the funds in the second half of the list focus only on those companies that have the highest yield. Both strategies can be highly beneficial to investors and neither are universally superior to the other; the suitability of these funds depends on the client. 

  • Dividend Appreciation ETF (VIG, A)
  • Morningstar Dividend Leaders Index Fund (FDL, B)
  • SPDR S&P Dividend ETF (SDY, A-)
  • S&P Global Dividend Opportunites Index ETF (LVL, B)
  • SuperDividend ETF (SDIV, B+)
  • KBW Premium Yield Euity REIT Portfolio (KBWY, A-)

If used properly, both styles of dividend investing can be very powerful tools. But if used incorrectly these products have the potential to deliver too little yield or too much risk.

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Disclosure: No positions at time of writing.