Latest news, trends and ideas for investing with exchange traded funds | ETF Commentary

One way to reduce the risk of investing in dividend ETFs is to focus on those funds that screen for steady growth in dividends over time.

That’s one of the premises of Kiplinger’s recent story 5 ETFs That Focus on Dividends.

Exchange traded funds profiled in the column includes Vanguard Dividend Appreciation (VIG) which invests in companies that have raised dividends for 10 years, SPDR S&P Dividend (SDY) which holds companies that have increased dividends for 25 years and PowerShares International Dividend Achievers Portfolio (PID) which holds high-yield names that have increased dividends over the past 5 years.

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MarketWatch’s John Spence reports that income-seeking investors are taking a second look at dividend Exchange Traded Funds.

Spence notes that investors who abandoned CDs and money markets in favor of bond yields are now anxious about potential losses in bond funds if interest rates rise.

Dividend focused ETFs highlighted in the article include the iShares Dow Jones Select Dividend Index Fund (DVY), Vanguard Dividend Appreciation ETF (VIG), SPDR S&P Dividend ETF (SDY) and WisdomTree LargeCap Dividend Fund (DLN).

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With the market in a 3rd consecutive day of decline, investors are putting money into the Vanguard Dividend Appreciation ETF (VIG) according to the WSJ’s “buying on weakness” list which tracks stocks that fell in price but had the largest inflow of money.

VIG’s top holdings include Wells Fargo & Co, IBM and Coca-Cola.  The $1.9 billion fund carries an expense ratio of 0.24% and pays a dividend yield of 2.14%.

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In the column ETF Portfolios for Every Purpose, Kiplinger’s Jeffrey Kosnett recently outlined a series of all ETF portfolios with the idea that you can pursue any goal with nothing more than exchange-traded funds.

Kosnett’s all ETF Growth and Income portfolio includes these funds:

• 20% iShares iBoxx $ Inv Grade Corp (LQD)
• 20% iShares DJ Select Dividend (DVY)
• 10% iShares S&P/Citi Intl Treas Bond (IGOV)
• 10% iShares iBoxx $ High Yld Corp (HYG)
• 10% SPDR S&P Intl Dividend (DWX)
• 10% Utilities Select Sector SPDR (XLU)
• 10% Vanguard Dividend Appreciation (VIG)
• 10% Vanguard REIT (VNQ)

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Conventional investing wisdom these days is to go with dividend paying stocks. The logic is that even if the market moves sideways, you’ll get paid to wait.

However, SmartMoney’s Roya Wolverson cautions that investors should tread carefully among the three dozen dividend ETFs due to their heavy concentration in the troubled financial sector.

In the article Beware the Dividend ETF, Wolverson notes that, although banks and insurance companies have historically paid some of the highest dividends, they have recently been cutting back.

Wolverson recommends looking for ETFs that re-evaluate the portfolio often and for funds that are not overly exposed to financials.

The First Trust Value Line Dividend Index Fund (FVD) re-evaluates monthly and has a 17% exposure to financials. The Vanguard Dividend Appreciation Fund (VIG) has only 8% of portfolio holdings in financials.

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