The number of ETFs available in the market may be confusing, but there are so many choices that investors can customize their portfolios according to their personal preferences and strategy. The ultimate goal is usually the same (to make money), there are two primary categories investors fall into: those who use a fundamental strategy and those who prefer a sector strategy, explains Don Dion for TheStreet. We throw in a third strategy below, too.

Fundamental Strategy: Fundamental ETF portfolios are suitable for investors looking to take advantage of the cost efficiency and tax efficiency of ETFs over an extended time period. These portfolios are usually not traded very often and provide exposure to the broad market while meeting their needs for income.

Investors who find this strategy appealing often cite taxes as the primary lure.

• iShares Dow Jones Select Dividend Index (NYSEArca:DVY): up 4.8% year-to-date

• PowerShares QQQ (NYSEArca: QQQQ): up 42.9% year-to-date

Sector Strategy: A sector ETF strategy is designed to actively capture market trends. Some prefer  a momentum-based strategy to indicate the best times to enter and exit funds. ( The strategy you choose is just as important as the approach). These portfolios are considered active, as they are traded and monitored constantly.

• iShares iBoxx $ High Yield (NYSEArca: HYG): up 23.8% year-to-date

• PowerShares DB U.S. Dollar Bullish (NYSEArca: UDN): up 8.1% year-to-date

A Blend Strategy. We use trend following by monitoring the 200-day moving average in order to find those areas that are moving. By getting in and out of the market at set signals, you give yourself the opportunity to be in the markets for any potential long-term uptrend. The stop loss enables you to put a cap on your losses. The benefit of relying on market signals to determine where and when you invest also removes the “noise” that emotions can generate and cloud your judgment. Any ETF works with this strategy, whether it’s a broad-based, plain-vanilla fund or a more exotic, niche ETF. (How to get in on the rebound).

Always do some research on what you are implementing and consider the liquidity, underlying stocks and pricing taking place in the ETFs you choose.

For more stories about trend following, visit our trend following category.

Investors looking for dividend-paying stocks will encounter the argument that “growth” stocks may be better than those paying dividends, remarks John Jagerson for Learning Markets. (Read about how dividends can help).

Dividend-paying stocks, however, have usually outperformed major growth indexes as a result of lower volatility returns. For example, the Dow Jones Select Dividend Index has outperformed the S&P 500 and the Russell 2000 by almost 100% in the last 10 years.

Jagerson commented that an investor does not need to decide on a dividend-paying portfolio over a growth-oriented portfolio. A reasonable alternative may be a combination of the two.

You could take the time to scrounge up individual stocks that pay dividends, but you may also consider ETFs as an easy way to gain exposure to dividend-paying stocks. (Read about strategies to rebuild your portfolio).

For more information on dividends, visit our dividend category.

• SPDR S&P Dividend ETF (NYSEArca: SDY): up 16.4% year-to-date; yields 4.27%

• WisdomTree LargeCap Dividend (NYSEArca: DLN): up 15.8% year-to-date; yields 2.94%

• iShares Dow Jones Select Dividend Index (NYSEArca: DVY): up 7.1% year-to-date; yields 4.32%

Max Chen contributed to this article.

Investors interested in dividend ETFs should watch out for large sector distributions, most notably sector exposure in financials, comments Roger Nusbaum for TheStreet. Having a fund with a high exposure to financials is fine, but it might not be such a good thing if other funds in a portfolio also include high financial exposure. It also may be exposure that you, personally, don’t want in your portfolio.

Long-term investment in dividends has its perks. The stock market has seen an average annual return of around 10% in the long run, and 40% of that return has been generated by dividends.

Since the latest financials-induced migraine, dividend funds have decreased weightings in financials or even eliminated them altogether.

iShares Dow Jones Select Dividend Index (NYSEArca: DVY): up 2.9% year-to-date; decreased its weight in financials to 14% down from its original 40%. The reason for the reduction is because some financial companies have either suspended or cut their dividends. Now the largest allocation is in utilities, at 24%, followed by industrials, at 20%, and consumer goods, at 17%.

PowerShares Intl Dividend Achievers (NYSEArca: PID): up 33.2% year-to-date, has 30% in financials compared to its original 41%. It still has a high weighting in financials because the five large Canadian banks in the fund have held up in the crisis and none had to cut dividends.

WisdomTree Dividend ex-Financials (NYSEArca: DTN): up 13.7% year-to-date; as its name states, this fund has no exposure to financials; its weightings are in utilities, 17.5%; consumer staples, 13%; telecommunications, 11.3% and industrials, 11%.

For more information on dividends, visit our dividend category.

Max Chen contributed to this article.

Stocks are still a ways off their 2007 highs, however, many investors  may find the comfort of dividend income enough to tide them over until the market recovers. Dave Kansas for The Wall Street Journal reports that there are other reasons for investing in dividend-paying companies other than the extra capital:

1. Companies that can maintain or even increase a dividend payout are showing their strength. Some companies have reduced or eliminated their dividends.
2. In the wake of various accounting scandals, a steady dividend is proof that a company is actually making the money it says it is making. There is nothing that accounting numbers can hide to fake a dividend payout.
3. Since bond yields are at low levels, dividend yields are now competitive. Most economists expect bond yields to stay depressed for the time being, too.

Among the stellar companies that have managed to up their payout rather than decrease them include General Mills (GIS), Colgate-Palmolive (CL) and Lockheed Martin (LMT), to name a few.

When searching for a good dividend-paying company, Kansas suggests a couple things:

• The dividend yield of a major average, such as the Dow Jones Industrial Average, is a good starting point for deciding which dividend-paying company to add to your portfolio. You would eye stocks that outpace the dividend yield of the average.
• Watch for stocks that pay a good yield, which is calculated by dividing the annual dividend by the share price.
• We’d also add here that investors can look at dividend-paying ETFs. The providers are constantly in search of these high-quality stocks, saving investors time and giving them diversification. Some dividend-paying ETFs (though there are many, many others):

• SPDR S&P Dividend (SDY): up 6.3% year-to-date; yields 5.3%

• First Trust Morningstar Dividend Leaders (FDL): up .40% year-to-date; yields 5.1%

• WisdomTree Dividend ex-Financials (DTN): up 8.5% year-to-date; yields 5%

Keep in mind that there are many dividend-paying stocks nestled into other ETFs, as well.

For more stories about dividends, visit our dividend category.

ETF investing has become a popular way of getting into the market with less risk than a single stock, especially when times are still uncertain. Fear not – there are ways for skeptics to invest with a “recession-proof,” or defensive, strategy by looking at certain industries.

The Motley Fool suggests that a global approach can be a wise approach, since two-thirds of the global market cap resides outside the United States. Foreign companies and markets are still affected by the U.S. economy, however, the diversification a global investment brings can buffer the losses.

• iShares MSCI EAFE (EFA): up 15.9% year-to-date

EFA has more than 2,000 holdings, and companies span the globe, ensuring maximum diversification.

Another place investors may turn to for a defensive approach is dividend-paying stocks. The following fund offers about 100 dividend-paying companies. Some are in defensive industries, such as consumer staples, pharmaceuticals and utilities, although some are also in the beleaguered financial sector.

• iShares Dow Jones Select Dividend Index (DVY): down 2.9% year-to-date; yields 5.5%

Consumer staples can also be an option. While consumers might delay buying a new television or upgrading that clunky, slow computer, few consumers would put off buying toothpaste, toilet paper and certain basic foods. Consumer staples ETFs can be an appealing option for investors who want to capitalize on this notion.

• Consumer Staples Select Sector SPDR (XLP): up 2.7% year-to-date

Remember that having a strategy, no matter the market condition, is necessary. We follow the 200-day moving average. By watching market trends and following through with your strategy in place, losses will be kept to a minimum and emotions will be left out of the equation.

For more stories about dividend and global ETFs, visit our dividend and global ETF categories.

Stocks operating with high dividend yields could have recently experienced a drop in share prices or be an “out of favor” money maker, remarks ETF Guy for ETF Topics. A company could have also raised its dividend in the past and can be considered a dividend growth stock.

In a hypothetical situation, a dividend yield investor sees a 13.0% yield for a stock and a dividend growth investor sees a stock with 2.0% yield and an average annual dividend growth rate of 10.0%. It is calculated that the dividend yield stock will start paying out 5.0% in 10 years. But a dividend yielding stock does allow an investor to receive some extra money on a regular basis.

Investors utilizing dividend yield stocks have an opportunity to use higher dividend profits to either retire or grow an investment portfolio. Dividend growth stocks may not provide enough for retirees.

When investing into dividend stocks or ETFs, it is important to have your own strategy in place for the time frame you have in mind. ETF Guy thinks the obvious solution is to have a balanced investment in both dividend yield and dividend growth type stocks, but every investor is different. Consider your own goals and needs.

• SPDRS (SPY): yields 2.7%; up 0.8% year-to-date

• PowerShares International Dividend Achievers (PID): yields 3.4%; up 8.6% year-to-date

• PowerShares Dividend Achievers (PFM): yield 2.9%; down 9.0% year-to-date

• iShares Dow Jones Select Dividend Index (DVY): yield 5.5%; down 13.5% year-to-date

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

Max Chen contributed to this article.

Owning a dividend-paying stock or ETF traditionally should pay off in times like these. After all, consistent dividend-payers are financially stable or they wouldn’t be able to sustain their payouts. Plus, by owning a high-yielding stock, you get paid while waiting the hard times out, says Elizabeth Ody for Kiplinger’s.

Over the past year, dividend ETFs have run into a few problems because of the enormous exposure to financial stocks, the sector that led us into this disaster. As a rule, many divdend paying stocks are financial, because they have the size, performance and capital to do so.

iShares Dow Jones Select Dividend Index (DVY) is a perfect example of  how the payout strategy went wrong. The ETF tracks an index that invests in the stocks of the 100 highest-yielding U.S. companies that have maintained or boosted their dividends over the past five years-mainly financial stocks before 2008.

In 2006, 43% of weightings were in the financial sector; by 2008 49% was allocated to financials. DVY lost 44% over the 12 months ending March 18, trailing the S&P 500 by 5%.

Before going into any market, investors should do their homework and make sure that their funds don’t hold things they don’t want exposure to. Some investors might seek financials exposure, but others might not, and would be surprised by the financials weighting in DVY if they haven’t done their homework.

WisdomTree is remedying the financials exposure issue by restructuring some of their funds to leave the sector out entirely.

• WisdomTree Dividend Top 100 (DTN) will become WisdomTree Dividend ex-Financials
• WisdomTree International Dividend Top 100 Fund (DOO) will be re-named WisdomTree International Dividends ex-Financials Fund

DVY is down 24.2% year-to-date.

During this crazy bear market and market meltdown, optimistic investors have been turning to dividend-rich exchange traded funds (ETFs) to answer their prayers. But what if the funds have lost more than what they yield? What’s the point of them then?

One reader of ours wonders:

Can someone please explain to me why ETFs that have lost more over the last month than their dividend yield would be attractive?  Or stocks for that matter?  Isn’t this yield only attractive if you think they have bottomed? Is there something I am not getting about dividend stocks??

The answer: Dividend yields on a particular market segment are a concrete measure of the market’s valuation levels-whether those stocks are offering attractive terms to entice you to invest in them compared to their competing asset classes.

Stocks’ biggest competition comes from either cash or bonds. The short term returns on money markets are at or near zero today. The 10-year U.S. government bond is yielding under 3%, the lowest level in more than 50 years.

These low yields in bonds offer the least enticing terms this century for bonds, and the primary reason investors are accepting these low yields today is an extreme amount of risk aversion about losing money in stocks.

The Dividend Yield on a basket of large cap us dividend stocks measured relative to the dividend yield on the S&P 500 is also another valuation measure to gauge the attractiveness of the dividend basket.

Of course, the market always could move more in the short term than the dividend yield offers you. But owning stocks was never supposed to be a risk free proposition, and we believe having strong underlying valuation metrics such as the dividend yield underpinning your investment is the best way to minimize that risk.

Simon Maierhofer for ETF Guide notes that double-digit capital gains in 2008 pushed dividends to the back burner. As the Dow Jones Industrial Average and S&P 500 touched on new highs in 2007, dividends were simply a moot point to most investors.

But now, investors are hungrily on the hunt for yield again. Here are nine ETFs delivering such yields:

• iShares FTSE NAREIT Retail ETF (RTL): which got slaughtered in 2008, but shoots of an impressive yield of 13.6%
• PowerShares Financial Preferred Portfolio (PGF), we all know how well this sector performed last year, but PGF yields 13.6%
• iShares S&P U.S. Preferred Stock ETF (PFF), a yield of 10.8%
• iShares iBoxx High Yield Corporate Bond ETF (HYG), producing a yield of 10.6%
• PowerShares Insured National Municipal Bond Portfolio (PZA), a 5% yield, but keep in mind that this yield is partially tax-free
• iShares DJ Select Dividend ETF (DVY), a fairly well-established ETF that has a generous exposure to financials and generates a yield of 6.9%
• State Street’s S&P Dividend ETF (SDY), shooting off a yield of 6.3%
• SPDR DJ Wilshire Large Cap Fund (ELV), producing a modest yield of 5.1%
• iShares Russell 1000 Value ETF (IWD), generating a yield of 4.2%

Although these yields are very tempting, remember that the markets have really taken a hit in the last year.  Remember to watch the trendlines and do your homework before throwing any extra change into the market.

Dividend growth and stock price appreciation are quite synonymous, according Todd Wenning for MSNBC. It is a common misconception that dividend-paying companies who pay a percentage of profits to shareholders are left without enough to reinvest, which would provide slower earnings growth.

Studies have shown that there is a correlation between higher dividend payouts and higher earnings growth. It is shown that companies will be more selective with projects they take on after paying a dividend.

Best dividend-paying stocks in the last decade are ones with capitalizations above $100 million, listed on major U.S. exchanges, provides yearly dividends, has not cut dividends in the last decade, and has increased its dividend at least once.

The companies that were small- to mid-caps 10 years ago had the potential for price appreciation, and had payout ratios below 50%, which allowed for dividend growth. By keeping dividend growth below earnings growth, the conservative companies allowed for opportunities to reinvest.

The top 10 of such companies are: XTO Energy (XTO), Agnico-Eagle Mines (AEM), Occidental Petroleum (OXY), CH Robinson Worldwide (CHRW), Teva Pharmaceutical (TEVA), EOG Resources (EOG), Corporate Office Properties Trust (OFC) Tanger Facotry Outlet Centers (SKT), Potash Corp. of Saskatchewan (POT), Apco Argentina (APAGF).

There are ETFs that focus on dividends, but note that companies mentioned above could be holdings in other sector-specific funds:

• PowerShares Dividend Achievers (PFM):down 12.8% in the last month

• WisdomTree Dividend Top 100 (DTN): down 14% in the last month

• iShares Dow Jones Select Dividend Index (DVY): down 15.7% in the last month

• First Trust Morningstar Dividend Leaders Index (FDL): down 21.5% in the last month

• Vanguard High Dividend Yield Index (VYM): down 13% in the last month

Over the past week several dividend paying companies announced they are increasing the amount of the payout. Although economic times are tough, some companies are able to show their confidence in their business models and tough out the storm, and in the process, reward the shareholders who hung in there, reports Dividend Growth Investor on Daily Markets.com.

Some of the companies with an early Christmas present, among others, include:

• AT&T(T), a 2.5% increase of quarterly payment; 0.41 cents per share
• Nucor Corp. (NUE), increase of 9.40%; 0.35 cents per share(common)
• Edison (EIX), up 3.80% to 0.31 cents per common share
• Honeywell (HON), 5% increase to 0.21 cents per common share

While there are these ETFs that focus on dividends, note that these companies could be holdings in other sector-specific funds, as well:

• iShares Dow Jones Select Dividend Index (DVY): down 37% year-to-date; T 1.7%

• First Trust Morningstar Dividend Leaders Index (FDL): down 36.9% year-to-date; T 8.9%; EIX 1.5%

• Vanguard High Dividend Yield Index (VYM): down 34.1% year-to-date; T 3.4%