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Be wary of dividend ETFs

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According to Roya Wolverson of SmartMoney Magazine, dividend ETFs are a tricky hand to play. Some experts recommend dividend stocks as a solid long-term holding, she says; dividend ETFs have a total of $8 billion in assets.

Unfortunately, a lot of those funds are heavy on financial stocks. The financial crisis has led companies to cut dividends by $35 billion in the first half of 2008, Wolverson writes.

She warns against using the dividend-coverage ration as a gauge of a company’s ability to pay.

“Troubled financial firms often announce losses before they get around to cutting their dividends,” she writes. “The bad news can drive down the stock, making the dividend look high.”

Look for funds that re-evaluate their holdings frequently, and skimp on financials.


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