Dividend focused exchange traded funds are becoming an important tool in many portfolios. There are so many funds trading that investors may find themselves perplexed when it comes down to investing in one.

“If you look at the traditional income products, many of them actually have negative real returns when you factor in inflation,” Neena Mishra, director of ETF research at Zacks, said in a recent Barron’s article. “Income investors are looking for alternatives, and many of them are turning to dividend ETFs.”

Beginning in early 2011, the number of dividend focused ETFs has grown from  29 to 49 today, according to Morningstar, and total assets under management have gone from $22 billion to $47 billion. John Birger for Barron’s explains that based on the numbers, investors are not performance chasing here. Overall, the sector has produced mediocre returns. [Surveying the Dividend ETF Landscape]

Dividend ETFs are a cheaper alternative to many income producing investments. They are easy to trade and give investors one shot diversification advantages. [Dividend ETFs: Obsessed with Yield]

Here is a rundown of select dividend-focused ETF choices:

  • iShares Dow Jones Select Dividend Index (NYSEArca: DVYThis is the oldest dividend ETF, and it has returned about 6.3% this year, compared to the S&P 500 at 7.9%. [Appraising the Largest Dividend ETF]
  • Vanguard Dividend Appreciation (NYSEArca: VIGWith an expense ratio of 0.13%, the cost sets this fund apart. This is the largest dividend ETF trading today. All that is disclosed about the index is that it includes companies that have has at least 10 consecutive years of dividend increases. VIG has outperformed this category for the past 5 years.
  • PowerShares High Yield Equity (NYSEArca: PEYThis fund used to be overexposed to the financial sector, with about  55% of assets allocated to it. The 3.7% dividend yield is attractive and today, the fund owns less within the financial sector. Some analysts agree that PEY may own lower quality companies. [This Dividend ETF Carves Out Financial Stocks]
  • Utilities Select Sector SPDR (NYSEArca: XLUThis ETF yields 3.8% and is a good defensive strategy that yields a decent dividend. Some say this fund gives maximum yield with more safety than a dividend fund.

Tisha Guerrero contributed to this article. 

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.