Three Dividend Producing ETFs Worth A Look

With the Federal Reserve determined to keep interest rates at near record lows, many investors are turning to dividend yielding investments to generate income and for good reason. 

In fact, nearly 14 percent of the companies that are in the S&P 500 are paying more in dividends than the average yield being offered in the bond markets.  One reason for this is that companies went into cost-cutting measures during the Great Recession cutting headcount and minimizing inventories.  As a result many companies are sitting on piles of cash and are issuing dividends to distribute the cash out.

 Some notable mentions here include Altria Group Inc (MO) which has a yield of 6.48%, AT&T (T), which has a yield of 6.02%, Verizon Communications (VZ) which has a yield of 6.31%, Lorillard Inc. (LO) which has a yield of 5.53%, Qwest Communications (Q), Entergy Corporation (ETR) which has a yield of 4.17%, Waste Management Inc. (WM) which is boasting a yield of 3.69% and Chevron Corp. (CVX) which has a yield of 3.63%.  These are all companies that appear to have relatively sound strategies and are likely to continue to issue healthy dividends.

In addition to providing an income stream, dividends are known to be used as a recession safety net and an inflation hedge in times of economic recovery.  Although there are numerous benefits behind investing in dividend producing securities, it is equally important to remain diversified.  This can be done through the following ETFs:

  • First Trust Morningstar Div Leaders Idx (FDL), which has an overall yield of 4.38% and includes AT&T, Chevron and Verizon in its top holdings. 
  • WisdomTree Dividend ex-Financials (DTN), which has a yield of 4.01% and includes Qwest Communications and Altria Group in its top holdings.
  • iShares Dow Jones Select Dividend Index (DVY), which has an overall yield of 3.79% and includes Lorillard Inc., Entergy Corporation and Chevron in its top holdings. 

In addition to remaining diversified, it is important to be mindful of political uncertainties that could put a damper on the appeal of dividends.   The Bush tax cuts, which called for dividends to be taxed at 15% are set to expire at the end of this year and could result in dividends being taxed at ordinary income rates, which could get pushed up to 39.6% for the wealthiest Americans. 

Lastly, it is a good idea to have an exit strategy when investing in equities, regardless of their appeal to protect from downside risk.  Such a strategy can be found at www.SmartStops.net.

Disclosure: No Positions

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About etftutor
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton. He is contributing author on The Street - his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville. Prior to this, Mr. Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds

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