The Top 10 Dividend-Paying ETFs

by Mike Kapsch, Investment U Research
Friday, February 17, 2012

In just 10 years, the number of exchange-traded funds, or ETFs, has soared over 10-fold.

According to CNBC, there were 1,166 ETFs at the end of 2011. Already this year, another 249 have been introduced to the market.

Many investors are looking to exchange-traded funds these days as an alternative to owning individual stocks and mutual funds.

That’s because ETFs:

• Average lower maintenance fees than mutual funds.
• Can be bought and sold at any time of the trading day just like common stocks.
• Cover a wide array of investment areas including equities, bonds, currencies, commodities and real estate.
• Can provide less risk than owning individual stocks.
• Are typically more tax efficient than mutual funds in the sense that they have a lower capital gains tax.

And that’s not all… Many investors don’t realize ETFs can also provide some of the highest-paying dividends in the stock market.

High-Dividend-Yielding ETFs

There’s no doubt the past few years have been very straining financially for retirees and income seeking investors.

The Fed’s rock-bottom interest rates, coupled with the fact that most Treasury bond returns are in the negative when taking inflation into account, make it really hard for investors to find solace for their wealth.

But that’s where dividend-paying ETFs can help. And you may be surprised at just how many of these funds are dishing out big payments.

Among the top 10 yielding funds are:

For income seeking individuals, many of these dividend-paying ETFs are getting harder and harder to pass up.

In fact, so far in 2012, CNBC states, “ETFs have gathered $8.3 billion in new funds… while they’re actively managed cousins have seen nearly identical outflows of $7.9 billion.”

And WisdomTree states, ETFs are comprised of “baskets of investments that represent a diversified group of companies (just like mutual funds).”

This means they’re usually less vulnerable to price swings in the market than individual stocks. What’s more, the recent push into ETFs has prompted many funds to drop their expense fees, which makes them even more appealing.

Before you jump into an ETF just because it has a high yield though, there are risks to consider…

Potential Risks

The ETF industry has now become over a $1-trillion business and its growing fast.

Yet as Forbes cautioned last year, “The top 143 ETFs represent more than 85% of the assets invested in ETFs. The bottom 700 ETFs make up just 2% of ETF assets. Because these ETFs haven’t attracted sufficient assets and aren’t widely traded, they often lack liquidity.”

In other words, despite the diversification many ETFs provide, many – whether dividend paying or not – are subject to wild price swings simply because there aren’t enough people trading them.

Plus, as Legg Mason’s Peter Vanderlee told Barron’s, “If you only look at the dividend yield, you’re asking for trouble. Investors need to analyze the prospects for meaningful dividend growth,” as well.

The bottom line… You should shop around first to find an ETF that’s right for you.

ETFs Are Here to Stay

Julie Casserly, President of JMC Wealth Management, recently told CNBC, “In the ETF world you can be in any sector at any point. You can now invest more like institutions. Prior to this big explosion, retail investors couldn’t invest this way.”

This is a telltale sign that ETFs will only become more and more prevalent in the future.

And when weighing the pros and cons, ETFs should be seriously considered for any investor’s portfolio, especially those with high yielding dividends.

Good Investing,

Mike Kapsch

3 Responses to “The Top 10 Dividend-Paying ETFs”

1. robert pitts Says:
   
   February 17th, 2012 at 2:01 pm

   great information

   Reply

2. Gottfried Bach Says:
   
   February 19th, 2012 at 10:35 am

   Thanks for the list and the potential risks.
   Could information be added as to how LIQUID the top ten are and what the dividend GROWTH is?
   Thanks, G Bach

   Reply

3. Marshall Hechter Says:
   
   February 21st, 2012 at 4:33 pm

   Some of these issues have big yields if you hold thru the end of the year when extras are paid. NLR only pays annually at the end of the year.

   Reply

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