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.

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

Financials in Trouble. Shareholders may need to brace themselves, because Bank of America slashed its dividend to a penny in an effort to shave off costs and receive help from the Treasury Department. The financial systems remain in a state of distress, and the Treasury Department handed out $350 billion to financial institutions in need through the TARP program, without much question. Bank of America received $25 billion of that money.

What’s Fair? Matthew Goldstein for BusinessWeek reports that going forward, isn’t it only fair to demand that all of the nation’s bankers take whatever steps they can to cut costs and preserve capital before getting any more government help? The government is already pondering if they should nationalize Citigoup, and healthy banks such as Wells Fargo are trimming their dividends – this should be standard practice.

Doing All They Can? Dividends to ordinary stockholders has been cut, but preferred shareholders are still receiving dividends as they take priority over ordinary. The disturbance is that the bank asked for assistance before trimming any other dividend payouts. Analysts don’t expect other major banks to slash their dividends yet, but they’re paying close attention to earnings numbers.

• PowerShares Dividend Achievers (PFM): down 9% year-to-date; BofA Inc. 2.4%

• WisdomTree Total Dividend (DTD): down 9.2% year-to-date; BofA Inc. 2.7%

Dan Caplinger for The Motley Fool reports that after the tech bubble in the 1990s, dividend investing came back into style and Wall Street responded with the advent of dividend-paying ETFs. Many investors have had a rough time lately, and current market conditions have yielded bigger losses on dividend stocks than what they’ve gotten back in quarterly checks.

Here are five major dividend ETFs, all assembled in different ways:

• WisdomTree LargeCap Dividend Index Fund (DLN): Takes the 300 largest dividend-paying stocks and weights them according to the total amount of dividends each company pays.
• iShares Dow Jones Select Dividend Index Fund (DVY): Includes dividend-paying stocks that have maintained or increased dividends in the last 5 years.
• PowerShares Dividend Achievers (PFM): Screens for companies that have increased dividend payouts for the past 10 years and takes the highest paying stocks among them.
• SPDR S&P Dividend ETF (SDY): Takes 50 high-yielding companies that have raised dividends over the last 25 years.
• First Trust Value Line Dividend Index Fund (FVD): Uses value-line safety rankings to screen for stocks that are safer-than-average, and then takes high dividend yields of companies with market caps over $1 billion; takes an equal-weight approach.

After years of strong performance from financial stocks, many investors who got into the game late got burned. Many financial companies paid out beautiful dividends, but this is not the case right now. As of 2007, the bottom fell out of the sector and the ETFs suffered more than the broad market.

To approach dividend investing by what stock shave the highest yields is not the best way to go about your strategy. Instead, think about diversification and this will help avert the chance of big losses in little time.

For more dividend yields, you can visit WisdomTree’s Dividend Yield Analysis page.