Thursday, January 14, 2010

Dividends from ETFs? Yes!

Many investors who have never purchased an ETF or Exchange Traded Fund, think that ETFs are primarily for for traders. However, there are actually hundreds of ETFs which pay dividends, and has turned up more than 20 with yields above 5%. There are several ETF categories to choose from including high yield bond, real estate, and emerging markets bond. Here are a few examples.

The PowerShares High Yield Corporate Bond (PHB) ETF pays a yield of 8.8%, and attempts to track the Wachovia High-Yield Bond index. The fund has been paying monthly dividends since December of 2007. It has outperformed the High Yield Bond category over the last three months. Some of the largest holdings include bonds from Baldor Electric (BEZ) and Chesapeake Energy Corporation (CHK).

The iShares S&P U.S. Preferred Stock Index (PFF) ETF yields 7.9% tracking the S&P U.S. Preferred Stock Index. They have been paying dividends almost every month since May 2007. The ETF has outperformed its category and index over the last year. Larger holdings include preferreds from Archer Daniels Midland Company (ADM) and Barclays plc (BCS).

Do your homework on these ETFs before investing, especially the yield calculations, since many of the yields are based on recent higher than typical dividends that may not be maintained in the future. Always check the historical dividend payment history. A good starting point for high yield ETF ideas is the free database at, which can be sorted, added to, and changed.

Author does not own any of the above.


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