A Dividend ETF to Make Buffett Proud

Investors can follow's Buffett's penchant for good dividend-paying companies by investing in iShares Dow Jones Select Dividend Index Fund.
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NEW YORK (

TheStreet

) -- This year, Warren Buffett's $47 billion fortune placed him behind only telecom giant Carlos Slim and

Microsoft

(MSFT) - Get Report

founder Bill Gates on

Forbes

' list of the world's billionaires.

However, Buffett's massive wealth can not be attributed to an ample salary. For the past 25 years Buffett's annual compensation for running Berkshire Hathaway has been only $100,000.

Given this relatively meager pay, the investor has had rely on different methods of generating income.

Buffett has made the most significant portion of his fortune simply through holding shares of

Berkshire Hathaway

(BRK.A) - Get Report

stock. Shares of this textile mill turned world renowned investment conglomerate have soared since Buffett first took the helm, pocketing the investor billions.

Today, Buffett's 350,000 Berkshire Hathaway A Class Shares account for approximately 95% of his total wealth.

The remaining 5% of Buffett's riches have been earned from other sources, including his personal investments.

While the investor has typically been known for managing Berkshire's legendary portfolio, Buffett also commands a separate, personal portfolio on the side valued at $1.8 billion.

Within this portfolio, Buffett holds multimillion-dollar stakes in companies including

Johnson & Johnson

(JNJ) - Get Report

,

Kraft

(KFT)

,

Proctor & Gamble

(PG) - Get Report

,

United Parcel Services

(UPS) - Get Report

and

General Electric

(GE) - Get Report

.

Aside from the strong stable returns earned from these large-cap household names, Buffett's personal portfolio holdings also provide the investor with an impressive quarterly dividend.

So far, 2010 has been a good year Buffett and other dividend seeking investors. As of March 10, nearly 10% of the S&P 500 companies increased their dividends and additional hikes appear to be on the horizon.

According to a report from Robert Miles, author of

Warren Buffett Wealth

, the Buffett's personal portfolio generated last year a 2.3% yield that amounted to a nearly $43 million payout.

Today, using ETFs, investors can follow Buffett's lead and gain exposure to strong dividend-paying companies. My favorite play on this asset class is the

iShares Dow Jones Select Dividend Index Fund

(DVY) - Get Report

.

DVY is designed to track the Dow Jones U.S. Select Dividend Index that is made up of over 100 top dividend paying companies, including

McDonald's

(MCD) - Get Report

,

Lorillard

(LO)

,

Chevron

(CVX) - Get Report

and

Eaton Vance

(EV) - Get Report

.

The fund's sector breakdown shows particularly heavy focus on utilities firms, which accounts for over a quarter of the total index. Other dominant industries include consumer goods, industrials and financials which together account for another 50% of the fund.

In 2010, DVY has managed to beat out the broad U.S. markets. The fund has gained over 7% while the

SPDR S&P 500 ETF

(SPY) - Get Report

has gained slightly over 6%.

While its performance against the broad market is notable, DVY's real claim to fame is its quarterly dividend. In the past year, investors holding the fund recieved an approximately 3.5% yield for an even greater percentage payout than that of Warren Buffett's portfolio.

DVY is a strong, liquid fund investors can use to generate comfortable yields comparable to those earned by Warren Buffett. However, investors can also use the stability and diversification of DVY to create a strong base for building a successful ETF portfolio.

Feel free to share your own favorite divided yielding products in the comments section below.

-- Written by Don Dion in Williamstown, Mass.


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At the time of publication, Dion was long the iShares Dow Jones Select Dividend Index Fund.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.