A Dividend ETF Worth Emulating

This column was originally published on RealMoney.com on June 22.

In my June 4 column I highlighted a relatively new exchange-traded fund (ETF) launched by Barclays Global Investors in 2003. The Dow Jones Select Dividend(DVY Quote - Cramer on DVY - Stock Picks) fund is a diversified basket of 50 high-quality dividend-paying stocks that can be purchased with one transaction, just like buying a stock. The basket trades like a stock and has a relatively low annual management fee of 0.40%. The dividend yield is presently about 3.6% before the management fee is factored in.

For investors seeking immediate diversification in blue-chip, dividend-paying stocks, this ETF is a great way to go. But many RealMoney subscribers would rather own individual stocks. You probably also like to have some control of your investments, which you can't get in a mutual fund or an ETF. And you may also have a problem paying a management fee if you're doing most of your own research.

If you're a hands-on investor and want to make your own stock selections, you can still do so by piggybacking on the excellent selection criteria that are used to choose the 50 stocks that comprise the Dow Jones Select Dividend ETF. Many owners of ETFs, including the Dow Jones Select Dividend, are investment advisers who demand transparency. They want to at any time be able to look into the baskets they own for their clients.

As a result, the companies that create and manage the baskets show us the underlying components on their Web sites. The Dow Jones Select Dividend is no exception, and its holdings can be viewed here. The great thing about this transparency is that you can also create your own basket, avoid the ETF management fees altogether, and even tweak the holdings a bit.

A La Carte

Creating your own basket of dividend payers is relatively easy. I would suggest buying perhaps 25 of the Dow Jones Select Dividend fund's stocks. I would focus my purchases on those with the heaviest weightings in the basket itself, so that you will more closely track the basket's returns. Owning the stocks with the 25 heaviest weightings in the basket would give you a very nice representative sample, and you'd also have more control of the selection process, if you wanted to.

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