A growing number of investors are seeking to maximize their investment income rather than capital gains.
There’re many reasons for this: the tech stock bust of 2001, the accounting scandals, the recent stock market collapse following the subprime mortgage scandal, and the desire of aging baby boomers to focus on increasing their current income rather than increasing future capital gains that are proving highly volatile.
Such investors can buy individual stocks that pay dividends, but unless they have a lot of money to invest they cannot benefit from the safety net of broad diversification. People who buy index mutual funds or exchange traded funds get diversification, but low dividend income. The S&P 500 index contains many companies that pay dividends, but also many that don’t.
Fortunately, small income investors seeking convenience and diversification can choose from a number of exchange traded funds (ETFs).
The first ETF to focus solely on U.S. stocks that pay dividends is iShares Dow Jones Select Dividend Index Fund: DVY. It is based on the Dow Jones selection of the best U.S. stocks that pay dividends.
The PowerShares Dividend Achievers Portfolio: PFM tracks the Mergent Broad Dividend Achievers Index. This is a list of all U.S. companies that have raised their dividends every year for at least the last ten years. (Some have raised their dividends every year for over one hundred years.) Therefore PFM consists of all U.S. companies with a strong track record of raising dividends.
The PowerShares High Yield Equity Dividend Achievers Portfolio: PEY holds the fifty companies on the Mergent Dividend Achievers index now paying the highest dividends.
First True Value Line Dividend Index Fund: FVD holds the stocks in the Value Line Dividend Index. This index consists of companies that Value Line gives a SafetyTM Ranking of #1 or #2 using the Value Line SafetyTM Ranking System, which pay higher than average dividends and which have a market of at least $1 billion.
SPDR Dividend ETF: SDY tracks the S&P High Yield Dividend Aristocrat Index. The Dividend Aristocrat Index consists of the top fifty companies in the S&P Composite 1500 which have had annual dividend increases for at least the past twenty-five years.
The WisdomTree Total Dividend Fund: DTD consists of all the dividend paying companies in the U.S. stock market.
The WisdomTree High Yielding Equity Fund DHS tracks the WisdomTree High Yielding Equity Index. These are the companies in the WisdomTree Dividend Equity Index with the highest dividend yields.
The WisdomTree Dividend ex-Financial Fund DTN tracks the performance of the WisdomTree Dividend Top 100 Index excluding financial companies.
This ETF used to track all the top 100 dividend paying stocks. Obviously, WisdomTree restructured the fund after the financial crisis in the fall of 2008.
PEY, DHS and SDY focus on the dividend stocks with the highest yields. PFM and FVD focus on the companies with the longest track records of increasing dividends. DTN and DVY focus on quality of the companies. DTD is the broadest, including all U.S. stocks that pay dividends.
Investors seeking dividend income have a lot of good choices. They can receive an immediate return on investment whether the market goes up, down or sideways.
Posted in Exchange Traded Funds | 
Tags: Accounting Scandals, Aging Baby Boomers, Desire, Diversification, Index Funds, Investors, Mutual Funds, Subprime Mortgage