by Traders Reserve | November 15, 2012 9:47 am
Since the reelection of President Obama, the markets have one less unknown to grapple with. Now, however, traders have trained their attention on bigger unknowns. The biggest one is what’s going to happen with the so-called “fiscal cliff,” a GDP-killing combination of federal budget cuts to critical areas such as defense, and the automatic expiration of the Bush tax cuts. If the president and Congress fail to reach a deal by the Dec. 31 deadline, the markets are likely to get crushed, and that has many traders seeking shelter from this potential storm.
So, where do you hide out when the markets are plagued with uncertainties like the potential of driving straight off of the fiscal cliff? The answer is in exchange-traded funds (ETFs) that pay you to ride out the storm with what I call “phat” dividends. Here the word “phat” is from the urban slang for “cool,” or something very desirable. I also could have used the word “fat” as in “big,” but I think big dividends are extremely cool, and that makes them “phat” in my book.
Let’s take a look at 5 ETFs paying big “phat” dividends.
This fund is one of my favorite places to hide and get paid while the market’s weather is stormy. The iShares Dow Jones Select Dividend Index (NYSE:DVY) is pegged to the Dow Jones Select Dividend Index, a measure of the market that includes some of the biggest and best companies available today. Top holdings in this ETF include cigarette maker Lorillard (NYSE:LO), defense giant Lockheed Martin (NYSE:LMT) and energy behemoth Chevron (NYSE:CVX).
The combination of stocks in DVY have had a great year, with the share price up a steady 6.3% over the past 12 months, and that doesn’t include the 3.48% annual dividend yield you get paid to own the fund.
When it comes to dividends, it’s often a great idea to upgrade into “preferred” status. Here I am referring to the iShares S&P U.S. Preferred Stock Index (NYSE:PFF). This fund seeks to track the price and yield performance of the S&P U.S. Preferred Stock Index. That index includes some stellar companies and their respective preferred shares, including General Motors (NYSE:GM), Wells Fargo (NYSE:WFC) and HSBC Holdings (NYSE:HBC).
This fund has rewarded shareholders with a 7.9% share price appreciation, and that’s in addition to the 5.71% annual dividend yield.
Another fantastic fund chock full of dividend-paying stalwarts is the WisdomTree Equity Income (NYSE:DHS). This fund holds some of the biggest large-cap stocks in the market today, including AT&T (NYSE:T), Procter & Gamble (NYSE:PG), Johnson & Johnson (NYSE:JNJ) and Verizon (NYSE:VZ).
The mix of stocks in this fund have rewarded investors with a an 8.7% share price appreciation over the past 52 weeks, and that gain has come along with the added benefit of a 3.85% annual dividend yield.
In the quest for phat dividends, don’t overlook global stocks. Although many global equity stalwarts have had a rough go of it this year, the basket of stocks in the Guggenheim S&P Global Dividend Opps (NYSE:LVL) investment shares have held up relatively well when compared to many global equity indices.
This fund seeks investment results that correspond to the performance of an equity index called the S&P Global Dividend Opportunities Index, a measure of the markets that consists of 100 common stocks and ADRs that offer high dividend yields.
I suspect that many investors aren’t intimately familiar with the dividend-paying stocks in this fund, but many are big names in their respective regions. Companies such as the Sakari Resources (PINK:SSGDS), Aviva PLC (NYSE:AV) and Seadrill Limited (NYSE:SDRL) are among the top holdings in this fund, and together they offer investors a substantial dividend yield of 7.59%.
Another fund consisting of some of the biggest, best and most well-known dividend stalwarts in the market can be found in the Vanguard Dividend Appreciation ETF (NYSE:DWX). This fund is similar to DVY, although the top holdings are different. This fund owns stocks such as Wal-Mart Stores (NYSE:WMT), Coca-Cola (NYSE:KO) and IBM (NYSE:IBM) among its biggest positions.
Although there is some overlap with DVY and even DHS, holding all three of these phat dividend funds is a great way to make sure you cover all your bases when it comes to hiding out in the dividend space. With a share price gain of 6.55% over the past 12 months, and an annual dividend yield of 2.11%, this fund is a sound place to ride out any wider market selloff.
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