Dividends and Diversification

As with most other investment categories, income investors have options other than choosing individual stocks that pay dividends. There are several exchange-traded funds (ETFs) that specialize in dividend-paying stocks. One example is the Dow Jones Select Dividend Index Fund (NYSEMKT: DVY). Launched in November 2003, DVY is a passively managed ETF designed to track the performance of the Dow Jones U.S. Select Dividend Index, which is an index comprised of securities based on their dividend yield.

The Dow Jones Select Dividend index holds 100 stocks of companies that it deems as providing high dividend yields on a consistent basis. Stocks are screened on the basis of dividend per share growth rate, dividend payout percentage rate, and average daily dollar trading volume, then selected based on dividend yield. Analysts say DVY is appropriate for investors who want consistent income, regardless of the economic environment. The fund itself pays out a current yield of around 3.5%.

Source: Motley Fool

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