In a bleak year for the markets and many exchange traded funds (ETFs), there were some bright spots, believe it or not.

WisdomTree‘s line of dividend ETFs was one of them. The ETF provider known for using a dividend strategy in many of their ETFs provided impressive yields at the end of the year, ranging anywhere from 4% to 8%.

“The dividend fund yield at the end of 2008 was significantly higher than the yield you could get in U.S. government bonds,” notes Luciano Siracusano, WisdomTree’s chief investment strategist.

For example, their largest international dividend fund, WisdomTree DEFA (DWM), paid out a total of $1.76 per share in December. That distribution was 4.69% of the fund’s net asset value (NAV). “That’s at a time when the U.S. market is yielding 2%,” Siracusano says.

The dividends are connected to WisdomTree’s proprietary methodology, by which they include only dividend-paying stocks in their indexes, then weight them according to the dividend the company paid in the previous year. Only dividend-paying companies are eligible for inclusion in the indexes. The end result is that stocks that pay more divideds have a greater weight.

“Dividends are important for people who want to generate income in a downturn, but it’s also important for long-term investing,” Siracusano notes. “There’s a connection between higher dividends and higher returns over time.”

According to their investment philosophy, from 1926 through 2004, reinvestment dividends accountsed for 96% of the stock market’s total return after inflation.

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