Once upon a time, the conventional wisdom was that investors should hold stocks as a source of long-term capital appreciation while bonds could bring stability and a stream of meaningful current returns in the form of interest payments. But the appeal of bonds as a source of current income has been diminished by a prolonged period of record low interest rates, pushing yields down and forcing investors to look elsewhere for distributions. In many cases company stock now has distributions that exceed the yield on debt issued by the same entity, a unique phenomenon to say the least . The same scenario plays out for many ETFs; with interest rates at record lows, the current return that can be derived from corporate debt has plummeted. Yet dividend payouts have remained largely untouched, as corporate profits have maintained strength and companies have sought to make a show of stability through a consistent distribution to shareholders .

The iShares Investment Grade Corporate Bond Fund (LQD) recently had a 30-day SEC yield of about 3.2%, which is considerably higher than the yield available on Treasuries but below what is available through some ETFs that focus on dividend-paying stocks. Below, we profile a handful of dividend ETFs that offer meaningful yields:

  • Dow Jones Select Dividend Index (DVY): This ETF offers exposure to a diversified basket of U.S. stocks by seeking to replicate an index that screens potential constituents by dividend-per-share growth rate, dividend payout percentage, and dividend yield. The result is a portfolio that includes many high yielding securities, with Lorillard (LO), Lockheed Martin (LMT), and Chevron (CVX) making up the largest weightings.
  • High Dividend Equity Fund (HDV): This ETF seeks to replicate the Morningstar Dividend Yield Focus Index, a benchmark that is designed to include about 75 U.S. stocks that have provided relatively high dividend yields on a consistent basis. Currently, top components include AT&T (T), Pfizer (PFE), and Johnson & Johnson (JNJ).
  • WisdomTree Equity Income Fund (DHS):This ETF is linked to a fundamentally-weighted index that measures the performance of high dividend yield stocks. Specifically, components are weighted toreflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year, based on the most recently declared dividend per share. Big weightings in DHS include T, General Electric (GE), and PFE.
  • Global X SuperDividend ETF (SDIV):This ETF holds a basket of 100 equal weighted stocks from around the globe, focusing on the highest yielding securities available. While this strategy can pick up some risky beaten-down stocks, it also has the potential to deliver some huge dividend yields. At the end of June, SDIV had a 30-day SEC yield of about 8%.
Ticker ETF Yield*
LQD iShares Corporate Bond Fund 3.19%
DVY iShares Dow Jones Select Dividend Index Fund 3.60%
HDV High Dividend Equity Fund 3.61%
DHS Equity Income Fund 3.84%
SDIV SuperDividend ETF 8.02%
*As of 7/23/2012

Disclosure: No positions at time of writing.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI Emerging Mkts

    Learn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares Cali AMT-Free Muni Bond

    Learn more about the iShares California AMT-Free Municipal Bond exchange-traded fund, a popular tax-advantaged ETF that dominates its category.
  3. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Dividend

    Learn more about the SDPR S&P Emerging Markets Dividend Fund, a yield-focused exchange-traded fund tracking global emerging economies.
  4. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  5. Mutual Funds & ETFs

    ETF Analysis: U.S 12 Month Natural Gas

    Learn about the United States 12 Month Natural Gas Fund, an exchange-traded fund that invests in 12-month futures contracts for natural gas.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Floating Rate Bond

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Short S&P500

    Find out information about the ProShares UltraPro Short S&P 500 exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  8. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Investment Grd Fl Rt

    Learn more about the SPDR Barclays Investment Grade Floating Rate Fund, which tracks an index of highly rated floating debt securities.
  9. Mutual Funds & ETFs

    ETF Analysis: ALPS Medical Breakthroughs

    Learn more about a unique and innovative exchange-traded fund (ETF) in the biotechnology industry: the ALPS Medical Breakthroughs Fund.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Healthcare

    Learn about the iShares U.S. Healthcare exchange-traded fund, which invests in a wide range of health care providers, hospitals and home care facilities.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!