Dividend ETFs: A Solution to Stock Picking

May 1st at 8:50am by Tom Lydon

Dividend stock investors should consider diversified exchange traded funds to save time on researching individual companies and limit single-stock risk.

“As great as being a dividend investor is, it does require time. Why? To find, research both potential purchases but also current holdings,” according to The Dividend Guy blog. [No Free Lunch: The Risks of Dividend ETFs]

Dividend ETFs are a perfect alternative to single stock dividend investing. Since ETFs hold several stocks rather than just one, there is less research to endure and of course, less risk. It is still necessary to look into what companies the ETF actually holds, but this is the case with any fund an investor is interested in.

Dividend paying stocks have a long track record of giving investors solid gains over long periods of time. Dividends have accounted for about 47% of the S&P 500′s total return, over the past century, reports Eric Dutram for ETF Daily News.  Furthermore, dividend ETFs have become the major source for steady income for investors. [Dividend ETFs; How to Select a Winner]

While dividend ETFs are a relatively safe option for investors, they are not without risks. Any financial instability or abnormal situations arising in operations can force companies to cut their existing dividends. Also, many dividend ETFs are concentrated in a particular sector, which might underperform the overall market, ignoring the best performing sectors. This is why it is important to investigate which stocks a dividend ETF holds. [Non Cyclical Stock ETFs for Conservative Investors]

A few broad-based U.S. focused dividend ETFs:

  • SPDR S&P Dividend ETF (NYSEArca: SDY) yields 2.83%
  • Vanguard Dividend Appreciation ETF (NYSEArca: VIG) yields 1.86%
  • iShares High Dividend Equity Fund (NYSEArca: HDV) yields 3.64%

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.