Morningstar prefers large-cap stocks compared to the riskier small-caps that tend to be more expensive and are vulnerable in slow growth climates. Dividends can provide support in a low-return market.
“If there’s good news for investors, it’s the fact that leaner, meaner, multi-national corporations can still be quite profitable, selling their products and services in emerging nations,” Gordon wrote. [ETF Focus: Dividend ETFs in 2012]
Morningstar recommends the following dividend ETFs:
- Vanguard High Dividend Yield Index ETF (NYSEArca: VYM) The ETF is low-cost and diversified, making it a good core holding. The slant is toward large-cap, value companies.
- Vanguard Dividend Appreciation ETF (NYSEArca: VIG) This ETF is known for its stability. Companies in this ETF have to had increased dividends for the past 10 years.
- WisdomTree DEFA (NYSEArca: DWM) This fund is a “stable” overseas focused fund that highlights high-yield. The index is weighted by the amount that is paid in dividends, so the focus is on large-caps.
- PowerShares FTSE RAFI US 1000 (NYSEArca: PRF) Although the ETF is not dividend-focused, the index considers cash flow, book value and sales, along with dividends, for the companies included.
Vanguard Dividend Appreciation ETF
Tisha Guerrero contributed to this article.