Dividend-paying stocks no longer have to be a buy-and-hold investment, and are accessible in an exchange traded fund (ETF) basket. The one-month old Claymore/Zacks Dividend Rotation ETF (IRO) holds 100 stocks divided into two groups and are chosen because they are about to make a shareholder payment. Joseph Lesanti for NY Daily News reports the stocks are held around 61 days to meet IRS requirements for the lower dividend tax rate. The stocks are held long enough to qualify for this tax rate and then they are sold and new dividend-paying stocks are bought. The tax rate is 15%, and the process is repeated every month with one of the two groups.
This may sound like active management for the portfolio, but the index follows hard rules concerning yield, liquidity, company growth and payout ratio. Back testing shows that it is beating the Dow Jones select dividend index over the past decade. Now only time will tell.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.