Dividend ETF for Rough Market

02/04/2016 9:00 am EST

Focus: ETFs

Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and ETFU.com

The beginning of 2016 has crushed just about every investor, and just about every sector out there has seen red, cautions Doug Fabian, editor of Weekly ETF Report.

Stocks now are in a confirmed correction and many stocks have entered official bear market territory of 20% below the most recent highs.

The overall tenor of trading does not bode well for stock returns, at least in the first half of 2016.

Until there’s some price stabilization in the oil patch, there likely won’t be a bottoming of global equity markets. Now is the time when you want to be out of stocks and on the sidelines holding mostly cash and bonds.

iShares Select Dividend ETF (DVY) is an income and dividend-focused ETF that could help investors recover from market losses.

DVY is a big player in the land of dividend-focused ETFs, as it gives investors exposure to the biggest and arguably the best dividend-paying stocks in the market today.

As financial markets struggle to make headway of any sort, dividends are gaining appeal among investors as an alternative way to generate income.

DVY tracks the Dow Jones US Select Dividend Index, which is a compilation of broad-cap US companies that are known for their fairly high payouts.

In addition, DVY offers exposure to 100 companies that have paid out dividends for at least five years.

Although DVY was down some 5% in 2015 and has lost 3% so far in 2016, the fund’s losses have been far less substantial than some of the double-digit percentage hits many sectors and companies are reporting.

This is likely because DVY has significant exposure to both the utilities and consumer staples sectors (35.32% and 12.82%, respectively), which are generally two of the more stable areas of the market.

In addition, DVY’s dividend yield sits at a solid 3.5%, with $13 billion in assets managed and an expense ratio of 0.39%.

While DVY’s total assets largely are invested in positions in the dividend index it tracks, individual holdings are quite small, measuring no more than around 4% each.

The fund’s most significant holdings include big-name companies such as Lockheed Martin (LMT), Philip Morris (PM), McDonald’s (MCD), and Clorox (CLX).

If exposure to high-paying dividend stocks seems like a smart way to recover your hard-earned capital right now, the iShares Select Dividend ETF could a good first step toward that goal.

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