by Susan J. Aluise | March 30, 2012 9:57 am
For many investors, particularly those at or nearing retirement, generating income is an important part of their investment strategy. At a time when bond yields are drawing yawns from conservative investors, there’s a strong case to be made for high-dividend exchange traded funds (ETFs).
Investors have long appreciated stable dividend stocks because a reliable income stream can help offset some of the market’s short-term fits and starts. Even better: When the market rebounds, dividend stocks are like a free gift with purchase, delivering price appreciation as well as the regular cash distribution.
That being said, diversification remains an important characteristic of any successful investment strategy. That’s one of the advantages of ETFs, which are comprised of a basket of equities that trades over an exchange just like a stock.
Obviously there is no sure thing in the investment world, and dividend ETFs that hold equities are just as vulnerable to market downturns as individual stocks. And not all dividend ETFs are alike, so it’s important to weigh and measure individual funds to ensure that they advance your investment strategy.
Here are five high-dividend ETFs for income investors to consider:
PFF is an ETF that tries to match the price and yield performance of the S&P U.S. Preferred Stock Index. (Warren Buffett loves preferred stock — his Berkshire Hathaway (NYSE:BRK.A) made a big preferred buy into Bank of America (NYSE:BAC) last year.)
Be aware that most preferred stock ETFs have heavy exposure to the financial sector. Top PFF holdings include: General Motors (NYSE:GM), HSBC Bank (NYSE:HBC) and Wells Fargo (NYSE:WFC). With a massive market cap of $8.4 billion, PFF is trading around $39. The ETF has a current dividend yield of 6%, a one-year return of 5.2% and a year-to-date return of 10.6%. Its expense ratio is a comparatively low 0.48.
PFM is linked to the popular Broad Dividend Achievers Index, which focuses on companies that have increased their annual dividend for 10 or more consecutive years. Top holdings include: IBM (NYSE:IBM), Procter & Gamble (NYSE:PG), AT&T (NYSE:T) and Johnson & Johnson (NYSE:JNJ). With a market cap of $282 million, PFM is trading around $15.50. The ETF has a current dividend yield of 2.1%, a one-year return of 10.5% and a year-to-date return of 5.5%. It has an expense ratio on the high side at 0.6.
DLN takes a different weighting approach, including only stocks of companies that pay cash dividends weighted in proportion to the dividend payout. The ETF’s top holdings include AT&T, Exxon Mobil (NYSE:EXM), Microsoft (NASDAQ: MSFT) and General Electric (NYSE:GE). With a market cap of $1.2 billion, DLN is trading around $52.50. The ETF has a current dividend yield of 2.6%, a one-year return of 13.7% and a year-to-date return of 8.2%. Its expense ratio is a very low 0.3.
CVY’s holdings are diversified across asset classes and aim to match the Zack’s Multi-Asset Income Index. This ETF, which currently is very energy-focused, selects its holdings from a universe of more than 125 common stocks, real estate investment trusts (REITs), American Depositary Receipts (ADRs) and Master Limited Partnerships (MLPs).
Top holdings include energy player Williams Co. (NYSE:WMB), Spectra Energy (NYSE:SE), ConocoPhillips (NYSE:COP) and Chevron (NYSE:CVX). With a market cap of $683 million, CVY is trading around $21.75. The ETF has a current dividend yield of 3.8%, a one-year return of nearly 8% and a year-to-date return of 8.2%. Its expense ratio is a little high at 0.65.
FGD offers international exposure because it tracks an index that aggregates 24 developed-country benchmarks. Only companies that pay current dividends are considered. Top holdings include: Telecom Corp of New Zealand, German energy firm RWE, Swedish property developer NCC and U.K.-based Cable & Wireless.
With a market cap of $172 million, FGD is trading around $23.50. The ETF has a current dividend yield of nearly 4.7%, a one-year return of 1.2% and a year-to-date return of 7.6%. Its expense ratio is 0.6.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
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