How to Use ETF Dividend Paying Stocks to Your Advantage

Are you an active investor in the stock market? If you are, then you probably already know how time consuming it can be researching stocks to invest in. One alternative to finding good quality investment opportunities is by looking at ETF dividend paying stocks. An ETF (or exchange traded fund) is a collection of stocks that make up the value of a security. There are plenty of different kinds of ETF stocks to choose from, including those that pay out a dividend distribution.

What investors often fail to realize is that ETF dividend paying stocks can greatly reduce the time they need to spend researching potential investments. Most of the exchange traded funds that focus on high yielding stocks have filtered out the good dividend stocks from the bad ones. This is a perfect place for an investor to start their research, as the number of stocks to do additional research on has been greatly reduced.

Interested in learning more about ETF dividend paying stocks? Check out the following steps that can help you leverage them in your investment strategy.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Computer
• Internet Access

1. Pick a few of the best performing ETF dividend paying stocks and begin reviewing their top holdings. Most financial websites will provide you a list of the top 10 holdings of a given ETF for FREE. Take advantage of this information and use it to start your due diligence on finding top notch companies. Combine the top holdings of multiple dividend paying ETF securities into a consolidated list to work from.

2. Keep a close watch on the ETF dividend paying stocks that you choose to follow over the course of months and even years. It is important to note how certain holdings may move up and/or down in the rank of the holding. Focusing on how these stocks are moving can give you a good idea of a trend forming and a possible early signal to buy or sell a dividend paying stock. A good investor will still conduct their due diligence, but using an ETF to help you out can really save you time.

3. Look at the top holdings across several ETF dividend paying stocks to see what sectors or industries are hot and which ones are on their way down. This is another way to identify current trends in the market and will help give you early signals on which stocks will be in favor. For example, if bank stocks comprise a high percentage of the top holdings in a collection of ETF securities, then it may be a good idea to take a look at that particular sector. Likewise, if a sector has very few if any stocks that make up the top holdings, then you may want to stay away from the stocks in that industry for a while.

4. Set up a direct reinvestment of any distribution received from an ETF dividend paying stock that you may own. Another advantage of investing in an ETF is that most online brokers will allow you to setup up a DRIP (dividend reinvestment plan) that will automatically reinvest any dividend payments. This is also normally an option for investing in dividend paying stocks and can put your dividend income stream on autopilot. If you decide to invest in a dividend paying mutual fund on the other hand, you won't have this option.

5. Consider investing in ETF dividend paying stocks instead of purchasing individual securities. The great thing about an ETF is that is trades just as a normal stock would with a share price that is constantly updated throughout the day (unlike a mutual fund). As an ETF is bought and sold, its share price moves up and down just as it does for a stock. Purchasing these types of securities is an excellent opportunity to diversify your portfolio without buying several stocks.

Tips & Warnings

• Search for ETF dividend paying stocks by running a search using one of the many FREE online financial websites. You can also find other financial websites and blogs focused on dividend stocks by using a simple search engine query using "ETF dividend paying stocks" as your search criteria.
• An ETF dividend paying stocks is vulnerable to macro economic conditions, just as any investment. Fortunately, they are a little more secure than individual stocks because of diversification.

Resources

• Dividend Paying Stocks