High Dividend Stocks: Build an ETF Dividend Income Portfolio

Investors are ending the year in a wary mood. Sure, 2006 was a very good year for U.S. investors and substantially better for global ETF investors but what is going to happen next year?

The honest answer is that nobody knows.

The smart investor will make sure that their portfolios can benefit from rising global markets but still weather the inevitable pullbacks. One way to achieve this is to have a nice chunk in Dividend and Income rich ETFs.

In 2007, Chartwell ETF Advisor is adding a seventh model ETF portfolio which will focus on these markets. The reason is that baby boomers need to generate retirement income and fixed income alone will probably not get the job done. Investors need the prospect for capital appreciation plus some downside protection from high dividend lower volatility stocks.

Here are some positions that the Chartwell Dividend/Income ETF portfolio will likely hold going into 2007.

The PowerShares International Dividend Achievers ETF basket (PID) contains 60 international ADRs (American Depository Receipts) that trade on U.S. exchanges. All of these companies have increased their annual dividend for five or more consecutive fiscal years. The portfolio is rebalanced quarterly and reconstituted annually. 55% of the companies in this ETF are classified as large-cap value, 16% mid-cap value and 13% small cap value.

Another interesting new ETF from Powershares is the Financial Preferred Equity ETF (PGF). This is the first ETF to provide investors access to preferred shares within the tax efficient ETF structure. The preferred marketplace is over $200 billion and again it is a way to enjoy potential of capital appreciation with dividend income. All dividends from this ETF are expected to be qualified dividend income.

Another Option is the recently introduced First Trust Morningstar Dividend Leaders ETF (FDL). This is a portfolio of the top 100 highest yielding U.S. stocks screened for consistent records of dividend payments as well as the ability to sustain future payments. Individual company weightings in the ETF are capped at 10% and stocks weighing more than 5% each cannot exceed 505 of the total portfolio.

Then of course there is the fast-growing family of WisdomTree ETFs which weight all holdings in their ETFs based on dividends. These range form domestic ETFs such as the Total Dividend Fund (DTD) to international options such as the International Dividend Top 100 ETF (DOO) and a variety of international sector ETFs like the International Utilities sector ETF (DBU).

Investors need to be careful not to have the same positions in all of your dividend/income ETFs. It is important to spread it around by having ETFs with different weighting schemes such as market weight, equal weight, dividends per share/price and available dividends. It would be nice to have your 2007 Christmas stockings full of dividends

Carl T. Delfeld President & Publisher Chartwell Partners http://www.chartwellETFadvisor.com

Carl has over twenty years of experience in the global investment business with a strong background in Asia.

• Author of global investor primer "The New Global Investor"

• President of the global investment advisory firm Chartwell Partners

• Publisher of the Chartwell Advisor ETF Report and Asia-Pacific Growth

• Columnist on global investing with Forbes Asia: "Global Gambits"

• Former U.S. Representative to the Executive Board of Asian Development Bank

• Chairman of the global economic strategy think tank ChartwellAmerica

• Asian specialist with the U.S. Joint Economic Committee and the U.S. Treasury

• Former member of the U.S. Asia Pacific Economic Cooperation Committee

• Former investment executive with Robert Baird & Company and UBS

• Graduate of the Fletcher School of Law & Diplomacy with economics scholarship from U.S.-Japan Friendship Commission

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Dividend Reinvestment Plans: Investing on Automatic Pilot

If you're like many investors who squander those small dividend checks from your stock portfolio, a Dividend Reinvestment Plan (DRP) might be just what you need. Just as its name implies, a Dividend Reinvestment Plan allows you to reinvest some or all of those dividends into more stock of the issuing company. Unlike purchases made through traditional means, partial or fractional shares, as well as whole shares, are available.

Technically, there are two types of DRPs. The first type involves buying shares at the market through an outside trustee. Although the company may subsidize the transaction costs, buying shares at a discount is not allowed.

The second type allows you to purchase directly from the issuing company, which may provide a discount from the market price. This is a distinct advantage over buying from an outside trustee.

Besides giving dividends a better purpose than sitting in your pocket or in a brokerage cash account, a DRP may offer other advantages as well. By buying on a regular basis, you are “dollar cost averaging” your purchases, an investment strategy designed to reduce volatility. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in the price. Of course you should consider your ability to continue purchasing through periods of low price levels. This type of plan does not ensure a profit or protect against loss.

Secondly, many companies offer added options with their DRPs, including purchasing stock at low minimums and sometimes even offering shares at a discount (often 3-5%) off current market prices.

From a tax standpoint, you are subject to income taxes on the value of the dividends whether you reinvest them or not. Your tax basis for all your shares including the reinvested dividends is the amount paid for the original shares plus the dividends, minus any costs deducted from your dividends as a service charge as part of the DRP.

Keeping good records is a necessity, especially if you plan to continue participating in a DRP over a number of years. Without the records, it may become very difficult to track all your purchases. A little bit of effort now can save you big headaches later on.

Usually, you will receive a quarterly statement outlining your DRP account. Among other things, these quarterly statements will detail your on-going investments, how many shares are held by the program, how many shares are held be you, and the value of all your shares.

Not all companies offer DRP's but, for a list of one's that do, there are many web sites dedicated to these plans. These internet sites not only have a full list of companies with DRPs, they also offers online enrollment services. For securities held in a brokerage or wrap account, check with your brokerage firm to determine if they have the means to enroll you. If all else fails, try either the company itself or its transfer agent.

Although it is easy to see the advantages of DRP programs to the investor, we should not overlook the benefits to the issuing company. Besides helping to stabilize market prices, a DRP is a relatively efficient way to raise capital and, because companies only “promise” to continue these programs in the future, the issuing company controls when and how much capital will be raised.

Over 1,000 companies currently offer some type of Dividend Reinvestment Plan and, with a little research, you should be able to get on the path of “automatic pilot” investing for the future.

Glenn (“Chip”) Dahlke, a senior contributor to the Living Trust Network, has 28 years in the investment business. He is a Registered Representative of Linsco/Private Ledger and a principal with Dahlke Financial Group. He is licensed to transact securities with persons who are residents of the following states: CA. CT, FL, GA, IL. MA, MD. ME, MI. NC, NH, NJ, NY.OR, PA, RI, VA, VT, WY.

If you have any questions or comments, Chip would love to hear from you. You may contact him at dahlkefinancial@sbcglobal.net. You may also contact him by going directly to the Living Trust Network web site located at http://www.livingtrustnetwork.com

Copyright 2005. LivingTrustNetwork, LLC. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the written consent of the Living Trust Network, LLC.

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High Dividend Stocks: Reinvesting Dividends - Why You Should

Here is a great article about reinvesting dividends from high dividend stocks:

First of all, I am going to briefly describe what dividends are. Dividends are simply payments made to stockholders on a per share basis. Usually dividends are paid in cash but occasionally a company may issue a stock dividend (you would be given more shares of stock usually based as a percentage). Some companies issue dividends on a per year basis while the majority of companies issue dividends quarterly. Now that you know more about what a dividend is, let's take a look at why it is so important to reinvest them.

Let me give you an example: $5,000 invested in Altria (MO) at the beginning of 1976 would be worth about 1.4 million today with all dividends reinvested. Now if you take the same $5,000 investment from 1976 but do not reinvest dividends, the total value today is only $375,000, over a 1 million dollar difference by not reinvesting dividends. Furthermore, the difference is not because Altria has paid you over a million dollars in dividends over 30 years. What happens when you reinvest your dividends is that you gain more shares of stock allowing you to compound the return of your original dividends. Not only do you gain extra value when the shares go up, you also will be earning dividends off previous dividends that have been reinvested into stock. Over time as the stock price fluctuates, you will be gaining more shares when the price is low, and fewer shares when the price is high. In effect, you are dollar cost averaging with your reinvested dividends.

Most companies that pay dividends have DRIP (dividend reinvestment) plans. These plans allow you to sign up to have your dividends automatically reinvested in more shares of stock. In addition, most of these plans are offered as a free service to shareholders and they will purchase fractional shares. Of course, if a company does not have a DRIP plan it might not be practical for you to reinvest dividends if you have to pay a commission each time. In most cases, you are still required to pay taxes on dividends even if you don't receive them as cash. Check with your tax professional and plan accordingly for taxes on the dividends. Finally, dividend reinvesting works best when you are investing for the long term. This allows more time for your investment to compound. If you are looking at a shorter term outlook, dividend reinvestment may not be for you.

For more free information on investing visit http://www.1stock1.com. 1stock1 also offers a stock performance guide that has calculated the value of several stocks with dividends reinvested over the past 30 years. The stock performance guide can be accessed here: http://www.1stock1.com/1stock1_023.htm.

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