Lawrence Meyers: Diversification provides the safety for these generous dividend ETFs.
Dividends are great things. We shareholders love it when companies give back pieces of our investment to us. A lot of high-yield dividends have appeared in the past few years, as people chase yield further out on the risk curve. ETFs have become popular vehicles as well, so it was only a matter of time before the two ideas came together.
Now we have ETFs that focus on all kinds of dividends. I like these four choices, that offer generous, if not spectacular, dividends. Then again, we always want to be cautious about stocks that have yields that are too high. They may suggest the dividend is unsustainable or the stock has fallen in price for a reason, boosting the yield.
1. WisdomTree International MidCap Dividend (NYSE:DIM)
WisdomTree International MidCap Dividend (NYSE:DIM) is a nice, modest entry in the space, and gives you international exposure you are probably lacking in your long-term diversified portfolio. International stocks can be perplexing, or even unsettling, because companies located in different countries may be subject to cultural or political risks you don’t understand.
That’s why I like ETFs, which were made for this reason. It provides instant diversification, so even if one country implodes, it won’t take the whole ETF down with it.
You won’t recognize many of the names in the ETF, but they focus on telecom, utilities, and financial services. It pays a 2.86% yield.
2. iShares US Utilities (NYSE:IDU)
iShares US Utilities (NYSE:IDU) is a nice, safe play in a sector known for its stability and consistent dividends. Utilities are hard to go wrong with, as they are able to charge prices based on government regulatory guidance. This is one case in which having government involved is a good thing.
Utilities don’t often get screwed by the government and they have monopolies in the areas in which they operate. So they don’t have competition and there is guaranteed revenue. The only thing to watch out for is having too much of a debt load. But again, in an ETF, the diversification gives you safety.
All the big utility names are represented here, and the top ten holdings take up almost half of the entire ETF. So while it isn’t quite as diversified as I’d like, the names are such that I have no real concerns. It pays a 2.91% yield.