This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Dividends Lure Investors to Large-Cap ETFs

Now that large-company stocks are paying higher yields than bonds, investors may be lured back to equities, according to Jeremy Schwartz, director of research at WisdomTree Investments.

Ten-year Treasuries are yielding 2.7%, while the SPDR S&P 500 ETF (SPY), which tracks the S&P 500, has a yield of 3.1%. "When you have higher bond yields, there is less of a reason to go into stocks," Schwartz says. "From 1958 until 2008, the 10-year note sold at a higher yield than the market."

The WisdomTree LargeCap Dividend Fund (DLN) is currently yielding 4.6%. Its top holdings include Bank of America (BAC), Exxon Mobil (XOM), General Electric (GE) and Pfizer (PFE). "In a way, this ETF is the S&P 500 of dividend-paying stocks," Schwartz says.

Thirty-four of WisdomTree's 42 equity ETF offerings revolve around dividend-paying stocks. There is no shortage of high-yield equities to choose from, but buying baskets of stocks may be the way to go. "Given the markets' extreme volatility, I am more comfortable diversifying our clients' portfolios through the use of ETFs," said Greg Merlino, founder of Ameriway Financial Services in Voorhees, N.J. "The risk-reward tradeoff is too dicey for individual stocks right now."

Merlino agrees with Schwartz that dividend investing has become more appealing. "It's become more attractive because you are being paid while waiting for the market to recover," he said.

Merlino particularly likes the iShares S&P National Municipal Bond Fund (MUB) for income investors. "When you are looking at Treasuries that pay close to nothing, 3.6% is a pretty attractive yield given that it's tax-free," he said.

Matt Hougan, editor of IndexUniverse.com, says dividend-paying stocks are compelling right now. However, he cautions investors to consider the financial footing of the major holdings of dividend-focused ETFs before purchasing. "There is the risk that companies will cut dividends," he says. "When looking at a dividend-focused ETF, you have to see how concentrated it is in financials. A major theme that we saw play out this year was dividend-focused ETFs placing big bets on financials, and they got punished for it."

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs