The Right Investments Pay Dividends

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.

By Ian Wyatt

NEW YORK (TheStreet ) -- The health care industry seems to have a better grasp of what President Obama's reforms mean for business. Now executives can calculate their next steps, and investors are pushing up prices for shares of health care related stocks.

For income investors seeking dividends, health care stocks are often attractive because of decent yields, but also because they are resilient in flat, or downward trending, markets. Health care is typically a defensive sector, and if stock prices do fall higher yields usually mean shares get snapped up quickly, thus putting a higher floor under the stocks.

Based on the performance of the iShares Healthcare Providers ETF(IHF) however, the story is all about higher stock prices, not lower ones. The ETF is already up 9.2% after just a month and a half in 2011 after rising by 8.7% in all of 2010. With a dividend yield of 6.2%, this ETF is an attractive option for income investors interested in a defensive play.

Dig into the ETF a bit however and you'll find a number of small-cap stocks paying attractive dividends as well. The attraction strengthens when you consider that this sector has seen several acquisitions recently.

Already in February, we've seen two substantial deals: Dialysis-service provider DaVita(DVA) said it would pay $690 million for privately held DSI Renal to expand its presence. And Kindred Healthcare(KND) created the largest network of U.S. rehabilitation facilities by buying Rehabcare Group(RHB)for $900 million.