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Friday, January 6, 2012

Dividend ETFs

Source: Capital Pixel
Anyone casually following investment markets knows that dividend stocks are the investment du jour.  After all, with the yield on the 10-year U.S. Treasury bouncing around 2%, big cap, well-known names yielding greater than 2% with a history of increasing dividends look very attractive.  Furthermore, the blogosphere has numerous bloggers who provide excellent dividend stock analyses - check out The Dividend Ninja (also see list at the end of his current post).  Thus, today investors don't have to do a lot of work digging up interesting investment candidates.

Another way to go is with dividend ETFs.  As always, they provide excellent diversification, are low fee (compared to mutual funds) and, in some instances, are commission free.

To get a take on what's available, I looked at the Schwab comparison chart shown here:

Source: Schwab

CLICK IMAGE TO ENLARGE As shown, there are 6 dividend ETFs listed including the new Schwab dividend ETF.  The following table shows the recent performance of 4 of these ETFs and their expense ratios:

CLICK TO ENLARGE  The table shows that the 12-month returns were quite attractive compared to the S&P 500 and that they varied fairly widely.  The thing to know is that there is wide variation in risk among dividend-paying stocks (and ETFs) - this is a really good reason to read dividend bloggers on an ongoing basis because they analyze this risk differential.  In particular, DVY is riskier than the other funds - its screening process will allow issues that have a higher payout ratio, lower capitalization, etc. and thus accounts for its higher performance.

I purchased some of DVY for clients who require an income stream.  Here is a history of a purchase:

Source: Schwab

CLICK TO ENLARGE  Note that it pays quarterly and that, given the dividend payments and today's price of $53.82, it is easy to calculate total return.

Disclosure:  Although the data in this post was obtained from reliable sources, it cannot be guaranteed.  I and my clients hold ETFs mentioned in this post.  This post is for educational purposes only.  Readers should consult the disclosures of the data sources as well.

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