As the economy and the stock market appear to be taking a breather this summer, investors have been scrambling to find investments that can provide a safe haven. Perhaps not surprisingly, dividend-paying stocks and mutual funds have become an investor favorite in recent weeks. According to Morgan Stanley Smith Barney, since early May, U.S. dividend-focused exchange-traded funds have seen the third-highest level of inflows among various categories of equity funds. If growth is expected to slow, it makes sense to focus on stocks that provide consistent dividend payments to give total returns a boost.
If your portfolio is light on dividend power, think about upping your exposure to this segment of the market. One of the quickest and easiest ways to get diversified exposure to dividend payers is through inexpensive exchange-traded funds. Let's look at some of the better dividend-focused ETFs on the market today.
Big names, big profits
U.S.-based large-cap stocks have long trailed behind their racier and more exciting small-cap counterparts. In the past decade, the S&P 500 has returned 2.6% annually, compared with a 6.9% annual showing for the small-cap Russell 2000 Index. But don't go ditching your large-cap names just yet. Small-cap stocks have lead in the early stages of the economic recovery, but as the market cycle matures and as growth slows, large-cap stocks should come back into favor. That means you need plenty of big names on your side, generating consistent dividends.
Three of the most popular dividend ETFs around are Vanguard Dividend Appreciation ETF
A full range of options
And while large-cap stocks should make up the bulk of your dividend-seeking portfolio (and your general domestic stock market allocation), there is still room for some small- or mid-cap dividend-yielding names. Clearly, there won't be as many small-cap firms that make consistent dividend payouts a feature of their business, but stocks further down the market capitalization spectrum could provide greater growth opportunities.
If you want smaller dividend payers in your portfolio, you might want to consider the WisdomTree MidCap Dividend ETF
Looking farther afield
However, the U.S. isn't the only place where dividend-paying companies set up shop. There are a growing number of foreign firms that also place a premium on providing shareholders with steady income payments. To fully diversify the dividend-yielding portion of your portfolio, you may want to add a fund or two that places their focus outside of U.S. borders.
Here, two decent options are SPDR S&P International Dividend ETF
Lastly, for investors who want more exposure to emerging-market dividend payers, there are two newer funds on the market that could prove to be long-term winners: the SPDR S&P Emerging Markets Dividend ETF
There is no guarantee that dividend producers will lead the market in all types of environments, but given where we are in our current market cycle, there's a good chance that financially solid companies that reward shareholders with dividends will do relatively well in the near future. So make sure you've got some coverage in this up-and-coming area.