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Sunday, February 07, 2010

What Stock Goes Up When the Market Drops, and Also Pays a Dividend

There are a couple stocks, actually Exchange Traded Funds or ETFs, which go up when the stock market drops, and on top of that, they pay a dividend. One of them is UltraShort Utilities ProShares (SDP), which utilizes futures contracts, options, forward contracts, swap agreements and similar instruments to seek a return that is twice the inverse of the daily performance of the Dow Jones U.S. Utilities index for a single day. This means that when utilities drop, this ETF should increase in price.

SDP pays a small yield of 0.25%, with dividends being paid since June 2007. A large portion of the dividend payouts are generally due to capital gains. Although payments were made in June and December of last year, there is no guarantee that dividends will be paid in the future.

The performance for last year was down, primarily because of the strong move in in utilities and stocks in general since March of last year. However, it has far outperformed the bear market category. If you consider investing in this type of ETF, remember that it is designed to provide a return on a daily basis, not long term, and not for income.

Another bearish ETF which pays a dividend is UltraShort Telecommunications ProShares (TLL), which has a yield of 0.36% based on its latest dividend payment. The ETF has a goal of providing twice the opposite return of telecom stocks. This ETF doesn't have as long a dividend track record as SDP and its performance underperforms the bear market category.

Author does not own any of the above.

By Stockerblog.com

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