Why Dividend ETFs Can Help You Tough Out Hard Times

To combat a recessionary climate, a strategy many investors use is investing in dividend-paying stocks and exchange traded funds (ETFs). These stocks and funds give income from the dividend, and also give you the chance to benefit from any returns.

Stocks are still a ways off their 2007 highs, however, many investors  may find the comfort of dividend income enough to tide them over until the market recovers. Dave Kansas for The Wall Street Journal reports that there are other reasons for investing in dividend-paying companies other than the extra capital:

1. Companies that can maintain or even increase a dividend payout are showing their strength. Some companies have reduced or eliminated their dividends.
2. In the wake of various accounting scandals, a steady dividend is proof that a company is actually making the money it says it is making. There is nothing that accounting numbers can hide to fake a dividend payout.
3. Since bond yields are at low levels, dividend yields are now competitive. Most economists expect bond yields to stay depressed for the time being, too.

Among the stellar companies that have managed to up their payout rather than decrease them include General Mills (GIS), Colgate-Palmolive (CL) and Lockheed Martin (LMT), to name a few.

When searching for a good dividend-paying company, Kansas suggests a couple things:

• The dividend yield of a major average, such as the Dow Jones Industrial Average, is a good starting point for deciding which dividend-paying company to add to your portfolio. You would eye stocks that outpace the dividend yield of the average.
• Watch for stocks that pay a good yield, which is calculated by dividing the annual dividend by the share price.
• We’d also add here that investors can look at dividend-paying ETFs. The providers are constantly in search of these high-quality stocks, saving investors time and giving them diversification. Some dividend-paying ETFs (though there are many, many others):

• SPDR S&P Dividend (SDY): up 6.3% year-to-date; yields 5.3%

• First Trust Morningstar Dividend Leaders (FDL): up .40% year-to-date; yields 5.1%

• WisdomTree Dividend ex-Financials (DTN): up 8.5% year-to-date; yields 5%

Keep in mind that there are many dividend-paying stocks nestled into other ETFs, as well.

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