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Top 10 Dividend ETFs

This posting features a comprehensive review of the dividend-related ETF sector. There are more than three dozen ETFs issued (including Elements not covered here) with more on the way to evaluate in this sector. To simplify matters for investors, we've whittled choices down to 10. The issues chosen represent a broad cross-section of domestic, global, overseas, real estate (REITs) and other sectors from a variety of sponsors. Doing so, makes sorting through the sector more manageable for most investors. We're not necessarily recommending one issue over another; rather we're just trying to feature those issues that aren't repetitive, although we mention other choices within each brief review where applicable.

Within each category, we filter them by placing importance on high assets under management, liquidity and/or strategies that make a difference the most critical tests. Newer issues tied to new indices with long (more than five years) of historical data may be worth investigating, featuring and using as a replacement if necessary.

As demographics in the developed world change with aging populations, the demand for income increases while risk avoidance decreases. At the same time, many investors understand the need for growth continues given the potential for inflation. Keeping a portion of a portfolio in common stocks among other sector allocations is important; however, adding yield through dividends can help achieve the dual goal.

Remember, with higher dividend yields, the more likely risk-taking increases -- there's no free lunch as they say.

XLU (SPDR Utilities Sector ETF) follows the Utilities Select Sector Index. This sector remains the historical first choice for investors seeking stable dividend income with the potential for long-term growth in value and increases in dividends. It was launched with a series of other S&P 500 sectors in June 2011. AUM (Assets under Management) exceeds $4.5 billion and average daily trading volume is roughly 6.3M shares. The expense ratio is .20% while the current quarterly dividend is $.30. The current yield is 3.60% and as of June 2011 YTD performance 8.99%.

Data as of June 2011

XLU Top Ten Holdings & Weightings

  1. The Southern Company (SO):                                     8.30%
  2. Dominion Resources, Inc. (D):                        6.79%
  3. Exelon Corp (EXC):                                         6.78%
  4. NextEra Energy, Inc. (NEE):                            5.97%
  5. Duke Energy Corp (DUK):                              5.63%
  6. FirstEnergy Corp (FE):                                    4.57%
  7. American Electric Power  (AEP):                      4.52%
  8. PG & E Corporation (PCG):                            4.23%
  9. Public Service Enterprise Group (PEG):          4.15%
  10. PPL Corp (PPL):                                              3.91%

DVY (Dow Jones Select Dividend ETF) was the first ETF launched in November 2003 with a focus on dividends. It follows the index of the same name. AUM is over $6 billion and average daily trading volume exceeds 660K shares. The expense ratio equals .40% and the current quarterly dividend is $.47 meaning a current yield as of June 2011 3.6%. Given the variety of companies comprising the index dividends can vary more than with utilities for example. Through March 2011 DVY has returned 5.57%.

Competitive issues could include DTD (Wisdom Tree Total Dividend Fund) and FDL (First Trust Morningstar Dividend Leader Index ETF)

Data as of June 2011

DVY Top Ten Holdings & Weightings

  1. Lorillard, Inc. (LO):                               4.06%
  2. Chevron Corporation (CVX):                2.20%
  3. Entergy Corp (ETR):                            2.04%
  4. VF Corporation (VFC):                                     1.85%
  5. Integrys Energy Group Inc (TEG):       1.85%
  6. Kimberly-Clark Corporation (KMB):      1.84%
  7. CenturyLink, Inc. (CTL):                      1.79%
  8. FirstEnergy Corp (FE):                        1.74%
  9. McDonald's Corporation (MCD):          1.62%
  10. DTE Energy Holding (DTE):                1.60%

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