The 5 Best ETFs for 2012

by Jim Woods | January 17, 2012 6:30 am

Dividend stocks were red-hot last year as the über-volatile market sent investors headlong into what has traditionally been the most stable segment of the equity universe. And while it isn’t likely we’ll see quite as much volatility in 2012 as we did in the final four months of 2011, powerful unknowns, such as Europe’s unresolved debt issues and China’s economic slowdown, could put real pressure on global economic growth — and by extension, the fate of the world’s equity markets. That means we could be in for an extended period of volatility and more capital inflows into the dividend space.

As investors, we can buy a well-thought-out group of solid, high-profile dividend stocks to gain exposure to the segment. But it’s easier to buy targeted dividend ETFs that already contain baskets of the best — and highest-yielding — dividend-paying securities.

iShares Dow Jones Select Dividend Index

The iShares Dow Jones Select Dividend (ETF) (NYSE:DVY[1]) is an ETF pegged to the Dow Jones index bearing its name. This ETF really saw gains during the final three months of 2011, perhaps the most volatile time for stocks all last year. The fund surged 11% over that period, and that gain came with a 3.44% annual yield (as of Jan. 13). DVY counts among its top holdings such stellar corporate names as Lorillard (NYSE:LO[2]), Chevron (NYSE:CVX[3]), Kimberly-Clark (NYSE:KMB[4]) and McDonald’s (NYSE:MCD[5]), to name just a few. The fund’s expense ratio is only 0.40%, making the cost of owning these high-end performers very attractive.

SPDR S&P International Dividend

International stocks were by no means the best performers last year, but that didn’t stop the SPDR S&P International Dividend (ETF) (NYSE:DWX[6]) from delivering a solid dividend yield of 4.02%. DWX’s expense ratio is 0.45%, just slightly higher than the domestic-equity focused DVY. For this modest cost, you get diversified exposure to international dividend stocks in income sectors such as telecommunications, utilities and financials.

WisdomTree Equity Income Fund

WisdomTree Equity Income Fund (NYSE:DHS[7]) enjoyed a good year, and it performed particularly well in the final quarter. The fund is up almost 8% over the past three months, and that comes with an annual yield of 3.31%. Its holdings are based on WisdomTree’s Equity Income Index, which reads like a Who’s Who of dividend stalwarts. Companies such as AT&T (NYSE:T[8]), General Electric (NYSE:GE[9]), Johnson & Johnson (NYSE:JNJ[10]) and Procter & Gamble (NYSE:PG[11]) top the list of payout performers you get when you own DHS. And at an expense ratio of just 0.38%, you get these great companies on the cheap.

iShares S&P U.S. Preferred Stock Index Fund

The iShares S&P U.S. Preferred Stock Index Fund (NYSE:PFF[12]) is an ETF that gives you exposure to preferred stocks. I like this fund primarily because of its outstanding 6.99% yield, but I also like it because it diversifies your income portfolio by owning the preferred shares of some of the world’s best companies. HSBC Holdings (NYSE:HBC[13]), General Motors (NYSE:GM[14]), Wells Fargo (NYSE:WFC[15]) and many others have issued high-yield preferred shares, and the easiest and cheapest way to own these equities — at an expense ratio of just 0.48% — is to have PFF in your portfolio.

Claymore/Zacks Multi-Asset Income  Index

Clamymore/Zacks Multi-Asset Income Index (ETF) (NYSE:CVY[16]) is perhaps the most eclectic fund of my five best ETFs for 2012. CVY has had a great run over the past three months, vaulting nearly 6% while offering an annual yield of 5.42%. One huge reason to love CVY is that it contains a host of different types of high-yield securities. In addition to domestic and international stocks, the fund holds real estate investment trusts, master limited partnerships, closed-end funds, Canadian royalty trusts and traditional preferred stocks. Owning CVY gives you the best of the best when it comes to income securities at a quite acceptable 0.78% expense ratio.

Now for insight on the 5 stocks you want to dump in 2012, click here[17].

  1. DVY:
  2. LO:
  3. CVX:
  4. KMB:
  5. MCD:
  6. DWX:
  7. DHS:
  8. T:
  9. GE:
  10. JNJ:
  11. PG:
  12. PFF:
  13. HBC:
  14. GM:
  15. WFC:
  16. CVY:
  17. here:

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