Dividend ETFs: Which Sectors Are Best?

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Exchange traded fund ( ETF ) investors are looking for income, and they're not finding it in Treasury bonds. That's part of the reason dividend ETFs are so appealing right now. But not every sector is handing them out in equal measure.

Nilus Mattive for Money and Markets has found a few dividend trends in the midst of the second-quarter earnings season:

  • The number of companies cutting dividends is starting to slow: 34 companies decreased or eliminated payments.
  • A massive 335 companies increased dividends in the second quarter; that's a 44% jump from a year ago.
  • The biggest dividend payers were consumer staples , utilities and communications . You can find ETFs in any of these categories by going to the ETF Analyzer and sorting by yield to see where the biggest payouts are.
  • Financials, materials and consumer discretionary companies may not be counted on for reliable dividends right now. [ Listen to Our Dividend ETF Podcast! ]

Going forward, the overall picture is looking sunnier for dividend payouts among companies, as they are forecasted to rise. on a company by company basis it is hard to determine which companies are going to rise their payout but ultimately, look for prosperity in these sectors: utilities, financials,and communications. [ Time to Consider Dividend ETFs? ]

Ben Steverman for BusinessWeek reports that you should be warned, though. If you're increasing your exposure to dividends, your taxes could be going up, too. [ Dividends: Aristocrats and Acheivers. ]

Taxes on these dividends could be rising because, at the end of 2010, tax cuts implemented under former President George W. Bush will expire. Right now, the Federal tax is capped at 15%, but if Congress does not continue the cap, they could spike to 39.6%. Yikes!

Dividend-paying stocks tend to outperform non-paying shares, and the fact remains that dividends can continue to be an ample source of income for an investor. In the short-term, at least, the higher tax may affect those dividend-paying stocks that have higher payouts.

For more stories about dividends, visit our dividend category .

  • SPDR S&P Dividend (NYSEArca: SDY)
  • Vanguard Dividend Appreciation (NYSEArca: VIG)
  • PowerShares High Yield Dividend Achievers (NYSEArca: PEY)
  • WisdomTree Dividend Top 100 (NYSEArca: DTN)

Tisha Guerrero contributed to this article.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

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