Investing in the markets and exchange traded funds (ETFs) come with a variety of risks, but stashing away some cash into some investments that yield dividends may help mitigate some of those risks while generating extra income.

Solid corporate earnings from a number of large corporations have led to dividend increases, reinstatement or, in some cases, dividends for the first time ever.

Historically, dividends have provided a hedge against inflation since dividend growth usually eclipsed the rate of inflation, writes Jeremy Schwartz for IndexUniverse. [Dividend ETFs: Which Companies are Paying?]

Though dividends have been averaging on the low side during the 2000s so far, WisdomTree believes that the current investment environment may be the basis for a shift toward a greater emphasis on dividend-paying equities. [How to Easily Find High-Yielding ETFs.]

Dividend indexes either hold all dividend-paying equities for a segment of the market or the indexes place screens to pick out select dividend-paying equities in a segment of the market – the latter type focuses on high-yielding equities, but loses some of its representativeness.

It should be noted, that dividend-yield-weighted or dividend-per-share weighted indexes have no scaling mechanism for company size and hold small-cap and mid-cap characteristics of equally-weighted indexes. [The Value of Mid-Cap ETFs.]

One would think that stocks with below-average dividend yields are reinvesting earnings back into their business so as to add higher dividend growth over the long term, or vice-versa, but WisdomTree argues otherwise. WisdomTree’s research found that a basket of higher-dividend-yielding stocks may actually produce higher dividend growth than the S&P 500.

There are dozens of dividend ETFs in the ETF Analyzer, which can be sorted by yield, expense ratio and performance. Some dividend ETFs include:

  • PowerShares Dividend Achievers (NYSEArca: PEY)
  • WisdomTree LargeCap Dividend Fund (NYSEArca: DLN)
  • Vanguard Dividend Appreciation (NYSEArca: VIG)

In State Street Global Advisors‘ recent snapshot report, the firm found that dividend investing remains popular, with the SPDR Dividend ETF (NYSEArca: SDY) increasing $3.5 billion in assets and year-to-date inflows of $2 billion, reports Murray Coleman for Barron’s.

For more information on dividends, visit our dividend ETFs category.

Max Chen contributed to this article.

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