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.

Some of the dividend-focused ETFs are so diversified that they could stand in as core holdings for a portfolio, remarks Paul Justice for Morningstar. When considering a dividend paying stock or ETF, the objective is to think growth over the long-term. Dividend investing is all about finding solid dividend stocks that are reasonably priced and are expected to continue raising their dividends in the future, explains Dividends4Life on iStock Analyst.

Do not confuse dividend investing with searching for high-yielding stocks to generate a high income. A majority of the time, the quality ones will not have outrageous yields, however the growing dividends over time could compensate.

Here is a small sample of dividend-paying ETFs. Note that this is not all-inclusive, and there are may other worthy ETFs delivering dividends to choose from:

• Vanguard Financials (VFH): yields 5.9%; down 5.2% year-to-date
• PowerShares International Dividend Achievers (PID): yields 6.2%; up 3.4% year-to-date
• SPDR S&P Dividend ETF (SDY): yields 6.4%; down 1.1% year-to-date
• SPDRS (SPY): yields 3.3%; up 1.4% year-to-date
• WisdomTree LargeCap Dividend (DLN): yields 4.8%; down 4.5% year-to-date
• Industrial Select Sector SPDR (XLI): yields 4%; down 2.3% year-to-date
• Diamonds Trust, Series 1 (DIA): yields 3.9%; up 2.8% year-to-date
• iShares S&P 100 (OEF): yields 3.7%; down 0.9% year-to-date
• iShares NYSE 100 (NY): yields 3.8%; down 2.9% year-to-date
• Rydex Russell Top 50 (XLG): yields 3.6%; down 1.6% year-to-date

There are still good yields (yield is the annual dividend divided by the stock price) to be found by investors who can discriminate between the good and the too-good-to-be-true. Analyst Howard Silverblatt, expects the recent contagion of dividend cuts and suspensions to spread to more companies whose earnings are too weak to support their payouts.

Mike Hogan for Barron;s explains that there are good places to start looking for companies who have staying power for decent yields. S&P 500 Dividend Arisoctrats is the best place to start a search. Its line-up for 2009 includes 52 members of the S&P 500 Index that have increased dividends every year for the last 25 years; its companion, the S&P High Yield Dividend Aristocrats, is made up of the 50 stocks with the highest yields among the Aristocrats.

Hogan caution that even the Aristocrats can run low on cash. Gannett (GCI), Pfizer (PFE), U.S. Bancorp (USB) and General Electric (GE) all have cut their dividends this year.

The average yield of the Aristocrats, at the low end of a 2%-to-4% range most years, has recently ticked up to 4.2%, compared with 4.57% for all S&P 500 dividend-payers, and around 3% for 10-year Treasury bonds. The bad news? Higher yields in the overall S&P reflect falling share prices more than increased dividends, illustrating that it’s tricky to pick winners.

• SPDR Dividend ETF (SDY): This fund targets just the high-yield Aristocrats. It’s down 22.2% year-to-date; up 14.6% over one week. It yields 7.25%.

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.

Last month the credit and housing markets turned over and sent dividends out of the roof to their highest levels in a decade. David Gaffen for The Wall Street Journal points out that if share prices do not repair themselves and shoot upward, the pressure will be on for the yields.

The dividend yield on S&P 500 companies is 3.1%, compared with 1.89% at the beginning of the year, 1.67% five years ago and 1.59% 10 years ago. But Standard & Poor’s has estimated that for the fourth quarter, dividends will fall 10%, making for the worst performance in 50 years.

Still, dividends can remain a sensible strategy thanks to the consistent returns. Dividend paying stocks were some of the best performers last week, and the SPDR S&P Dividend (SDY) jumped 12% in just two weeks. It’s down 23.3% year-to-date.

But dividend yields are in danger and must be defended but the outcome lies in the hands of the market right now.

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.