I realize some investors out there may be interested in investing in dividend stocks but may not be ready to purchase their own stocks and manage their own portfolio. Additionally some investors may not have the time or want to select their own stocks but want the benefits of investing in dividend stocks. Exchange Traded Funds (ETF's) are a great way way for investors to participate in stocks but not have the burden of selecting individual stocks.
First a definition of ETF's. An ETF is a group of stocks similar to a mutual fund except ETF's are traded on the stock exchange like other company stock. Most ETF's are based on a stock index such as the S&P 500.
ETF’s provide more flexibility since you can trade them on the stock market any time during the day. Low costs are another advantage of ETFs because their expenses are typically lower than mutual funds including index funds.
To get the maximum cost saving with ETF, look at using a low cost or no cost broker such as Zecco Trading. Even with low fees, brokerage commissions can seriously erode ETF costs when investing small sums of money.
The number of Dividend ETF's has been exploding with more coming to market each month. One of the oldest is iShares Dow Jones Select Dividend Index (DVY) from Barclays. DVY was started in 2003 and most Dividend ETF's can thank the Jobs and Growth Tax Relief Reconciliation Act of 2003 for their popularity. This tax act was signed into law in May of 2003 and lowered the tax rate on dividends to 15%. REIT's and foreign company dividends were excluded from the lower tax rate of this law.
Here are links to some popular Dividend ETF's
DTN WisdomTree Dividend Top 100
FDL First Trust Morningstar Dividend Leaders
VIG Vanguard Dividend Appreciation
VYM Vanguard High Dividend Yield
PEY Powershares High Yield Dividend Achievers
AGD Alpine Total Dynamic Dividend Fund
Here are links to some of the major providers of ETF's.
Barclays iShares
Vanguard
Powershares
WisdomTree
Disclosure: The Div Guy does not own any ETFs at the time of this post but I do own Shares of Barclays (BCS) which is the creator of iShares ETFs.
An easy way to invest: Dividend ETFs
Posted by The Div Guy | Thursday, September 04, 2008 | dividend stock, ETF | 1 comments »
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My concern with ETFs is will the dividends continue to increase once you purchase it?
It should, all things being equal, but of course, it depends on the persons who are running the show. Perhaps they will skim off the dividends to pay for the running of the ETF?
When you purchase a stock, say at $10.00 and have a dividend yield of 5%, you get $.50 per year, .125 per quarter. As the company raises the dividend, it goes straight into your pocket (or account).
But will that happen with an ETF? Will dividend increases get eaten up by charges and fees?
I think it is likely an ETF owner will get a lower amount because of fees, but how much, and for how long, and how much will it effect your return?
Dividends are a large part of historic returns. We know just a difference of 1% over twenty years can make a huge difference in returns.
So what does this mean in the end?
I wish I knew. Anyone?