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Updated to include the PowerShares High Yield Dividend Achiever Portfolio
NEW YORK (
TheStreet) -- Doing the required research to determine which dividend-yielding stocks should be in your portfolio is a daunting task. Consider investing in dividend exchange traded funds instead.
Investors, roiled by record volatility, have looked high and low for big dividends. Given that the Federal Reserve plans to keep interest rates at close to zero for at least another three years, dividend investing probably will gain in popularity.
Investing in individual stocks is risky. It's easy to make the mistake of buying a stock with an accidental dividend yield -- those that have inflated dividend yields because of a steep drop in the stock price. An example is
Frontier Communications(FTR - Get Report).
With a 15% yield, it is the highest-yielding stock in the
Dow Jones Industrial Average and
S&P 500 Index combined.
A safer way to grab higher yields is through mutual funds or ETFs that focus on dividend stocks. Comparing the two, mutual funds have a history of chronic underperformance versus benchmarks, whereas ETFs tend to be successful in mimicking benchmark indices. Other benefits to investing in ETFs over a mutual fund include lower costs and taxes, ease of trading and higher liquidity.
A total of 18% of new inflows into ETFs, or about $450 million, have been put into those that offer dividends, according to Eric Pollackov, managing director of ETF Capital Markets at
Charles Schwab. Ten of the top 20 ETFs are income-generating ETFs.
ETFs mimic the performance of an index, and, while they're passively managed, the underlying index usually is put together based on specific criteria. In the case of dividend ETFs, indices could be based on stocks that have a long history of dividend increases or those with a specific payout ratio, for example.