We have all experienced the guy at the party who is always
talking about his stock-picking skills. Hewill brag to anyone who
will listen how he bought onestock or another near the lows,
making a killing.
Icall this type of investor a "hot-stock chaser."
Hot-stock chasers are always looking for the next big thing in
themarket . They jump aboard whatever is moving or whatever is
supposed to be the next big thing. Jim Cramer is their hero, and
their TV is always tuned to CNBC for the next sizzling tip.
Jumping from stock to stock in a manic effort not to miss the
stock of the day, week or month, hot-stock chasers are never
When you first meet a hot-stock chaser, all you will hear
about are his winninginvestments . Dig a little deeper, and you
may discover that the hot-stock chaser also has a long history of
This is due to the tendency of the professionalmoney to begin
taking profits at exactly the moment a stock becomes
ultra-popular. Sometimes hot-stock chasers do catch a solid
upward move and earn substantial profits -- but it's more often
akin to a crapshoot. Somestocks perform as expected, but many
more fizzle out before anyone profits.
As you can see, being a hot-stock chaser is simply not a wise
strategy for a long-term investor. It has been demonstrated over
and over again thatinvesting success is built upon having a
diversified basket of solid, dividend-producing stocks.
In fact, the majority of stock marketgains over the past
several decades are attributable to dividends. Readers of Amy
Calistri, Carla Pasternak and other experts here at
StreetAuthority are well aware of the importance of
dividend-producing stocks when it comes to buildingwealth . That
strategy takes patience, and it can be a slow process, but it
beats chasing hot stocks, hands down.
If you are just starting out withdividend investing or are not
sure how to properly diversify your stock portfolio, there are
several exchange-tradedfunds (
) that do thediversification for you. These ETFs can be a great
way to launch a well-diversified, dividend-earning portfolio.
They are also a smart way for established investors to add a
professionally managed diversified package of stocks in an easy,
The ETFs best suited for a dividend portfolio are
iShares Dow Jones Select DividendIndex Fund (
SPDR S&P 500Dividend ETF (
The Dow Jones SelectETF is up nearly 13% thisyear alone and
the S&P 500 Dividend ETF boasts an advance of more than 16%
over the same time.
Not straying from the StreetAuthority's high-yield
methodology, the DVY ETF follows the Dow Jones Select
DividendIndex . This index excludes any company with any negative
dividend actions over the past five years. The SDY ETF tracks the
S&P 500 High Yield Dividend Aristocrat Index, which requires
companies to have increased dividends every year for the past
Unfortunately, as a result of these ETFs'
incredibleappreciation , theirdividend yield has declined to less
than 3%. Looking at the technical picture, both DVY and SDY have
pulled back from their highs, findingsupport at the 50-day
simplemoving average . This pullback into my value buy zone has
set up perfect technical buy opportunities in both of these
Risks to Consider:
The primary risks with these dividend-paying ETFs is simply
generalmarket risk . While they both meet the criteria for a
diversified, dividend-paying stock package, both follow the major
indexes. This means both ETFs will suffer further should the
market, as a whole, begin a sustained pullback.
Action to Take -->
I like both of these ETFs as long-term holds. However, there is a
chance that the market will experience a substantial pullback in
the near future. I strongly suggest tight stops at $63 for DVY
and $65 for SDY to protect against the possible broad market