Saturday, August 16, 2008

The Easy Way: Dividend ETFs

I realize some investors out there may be interested in investing in dividend stocks but may not be ready to purchase their own stocks and manage their own portfolio. Additionally some investors may not have the time or want to select their own stocks but want the benefits of investing in dividend stocks. Exchange Traded Funds (ETF's) are a great way way for investors to participate in stocks but not have the burden of selecting individual stocks.

First a definition of ETF's. An ETF is a group of stocks similar to a mutual except ETF's are traded on the stock exchange like other company stock. Most ETF's are based on a stock index such as the S&P 500.

ETF’s provide more flexibility since you can trade them on the stock market any time during the day. Low costs are another advantage of ETFs because their expenses are typically lower than mutual funds including index funds.

To get the maximum cost saving with ETF, look at using a low cost or no cost broker such as Zecco Trading. Even with low fees, brokerage commissions can seriously erode ETF costs when investing small sums of money.

The number of Dividend ETF's has been exploding with more coming to market each month. One of the oldest is iShares Dow Jones Select Dividend Index (DVY) from Barclays. DVY was started in 2003 and most Dividend ETF's can thank the Jobs and Growth Tax Relief Reconciliation Act of 2003 for their popularity. This tax act was signed into law in May of 2003 and lowered the tax rate on dividends to 15%. REIT's and foreign company dividends were excluded from the lower tax rate of this law.

Here are links to some popular Dividend ETF's
DTN WisdomTree Dividend Top 100
FDL First Trust Morningstar Dividend Leaders
VIG Vanguard Dividend Appreciation
VYM Vanguard High Dividend Yield
PEY Powershares High Yield Dividend Achievers
AGD Alpine Total Dynamic Dividend Fund

Here are links to some of the major providers of ETF's.
Barclays iShares
Vanguard
Powershares
WisdomTree


Disclosure: The Div Guy does not own any ETFs at the time of this post but I do own Shares of Barclays (BCS) which is the creator of iShares ETFs.


This article was written by The Div Guy. You may email questions or comments to me at thedivguy@gmail.com.

2 comments:

  1. THe only problem I have with these broad-based ETFs is that you can't select which companies they end up investing in. For example, I would never want my money working for Lockheed Martin or McDonald's. But if you pick up one of these ETFs, you have no choice. That's why my strategy now is to just replicate the companies of the ETF that I like. I treat the ETF as a stock screener.

    ReplyDelete
  2. MoneyEnergy,

    That is why I select my own stocks as well. I think ETFs can be a good option for someone wants to own dividend stocks but does not want to select individual stocks.

    ReplyDelete

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