Dividend ETFs May Be More Important Than Ever in 2010

Not everyone will describe the stock market as being stuck in an extended trading range. Stock assets muddled through December, then hit new highs in January. Shortly thereafter, stock assets corrected in February.

Yet when all was said and done, the S&P 500 found itself in the same exact spot that it occupied 15 weeks earlier… right around 1098. Fancy that- an absence of conviction on either side of the bear-bull debate for 3 and 1/2 months.

The truth is, each week has brought a mix of positives and negatives. Last week, producer price inflation rocketed, but consumer price numbers were surprisingly tame. Manufacturing data as well as business sales figures haven’t risen this fast since the early 1980s. Great news, right?! Yet real job growth is non-existent and the Consumer Confidence Index just hit a 9-month low.

(Remember when 2002-2003 had been described as a jobless recovery. Are you kidding me? This is what a jobless recovery looks like!)

On top of that, the interpretation of the news itself may be positive or negative. Policy shifts in China, prematurely shutting down global growth or a sign that the global economy can stand on its own? U.S. Fed raises its discount rate… prematurely pulling back on stimulus or a definitive sign that the U.S. economy is nearing a self-supporting stage?

So what can you do if you believe that stock assets will neither pick up significant capital appreciation, nor fall to pieces in an end-of-the-world scenario? You can pursue cash flow from Income ETFs or from dividend producing ETFs.

Dividend Producing Stock ETFs Over 15 Weeks (11/11/09-2/23/10)
Approx %
PowerShares High Yield Dividend Achievers (PEY) 4.1%
Vanguard Telecom (VOX) 2.6%
SPDR Select Utilities (XLU) 1.2%
S&P 500 SPDR Trust (SPY) 0.1%
Keep in mind, Utilities (XLU) and Telecom (VOX) were notorious underperformers in 2009. For that matter, ”risky stocks” were the rage at the expense of “Steady Eddie” yielders.

Yet, it’s easy to see how “Steady Eddies” can provide a measure of comfort in sideways or rudderless markets. According to RiskGrades.com, PowerShares Dividend Achievers (PEY) currently carries 10% less risk than the S&P 500 SPDR Trust (SPY). And its SEC 30-Day yield of 4.4% may be the income you need to feel more comfortable about your portfolio.