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Why ETF Dividend Stocks

Posted on | March 4, 2013 | Comments Off

An Exchange Traded Fund (ETF) is a type of investment instrument which is traded in stock markets like a stock. However, unlike a stock, an ETF is a mutual fund and therefore it owns other stocks on behalf of its subscribers or owners. A Dividend ETF is a type of ETF that specializes in investing in stocks that pay a higher rate of dividend. In the following sections we learn more about ETF dividend stocks, and why you should buy them.

Why you Should invest in ETFs

ETF’s are run much like mutual funds, but one thing that differentiates an ETF stock from mutual funds is the fact that ETFs are not actively managed by the fund manager. This means that the returns you can expect from ETF’s are closer to average than for some of the leading mutual funds. However, giving average returns is a strong point in favor of ETF’s, especially when used in conjunction with divided stocks.

It has been shown by many studies that it is almost impossible for any mutual fund manager to consistently beat the average stock returns by a wide margin over long period of time. In such a scenario, your best bet is to buy ETF’s, because they try to give at least average returns. Since the operating costs of ETFs are lower than an average mutual fund, their long term returns are better than an average mutual fund.

Advantages of ETF Dividend Stocks

If you want to invest in the stock market rather than in fixed income instruments such as bonds, but also want regular returns, then you should invest in high-dividend paying companies. However, choosing such companies requires a lot of research, so the best way to invest in such companies is to invest in them through an ETF.

A number of ETF’s specialize in high-dividend stocks. Called dividend ETFs, the mangers of such ETF’s will do all the research on your behalf, and invest in companies that have given consistent dividend over a long period of time. Normally, dividend ETFs declare regular dividend, which can serve as an income for you. At the same time, since you are invested in stocks through such ETF’s, you can also expect your principle to grow, unlike an investment in bonds.

Some Popular ETF Dividend Stocks and their Returns

Vanguard is the most popular company when it comes to ETF’s and it is not a surprise that they have a dividend ETF too. Called Vanguard DVD A.E. this dividend ETF has given 9.8% annualized rate of return over the last ten years. SPDR is another major name in ETF and mutual funds, and its dividend ETF is called SPDR S&P Dividend ETF. Other than these top names, there are more than 30 other dividend ETF stocks to choose from when you want to invest in dividend ETFs.

In this article we learned about what is a dividend ETF stock, and why you should invest in one. In summary, you should invest in dividend ETF stocks when you want regular returns over unpredictable returns. Further, they also promise an income through dividend, which is not always available with growth stocks.


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