If you are an investor or thinking of becoming one, you may be interested in exchange traded funds (ETF) which are considered a valuable part of any investor’s portfolio. Before you make that addition to your portfolio, here is a look at what you need to know about these funds.
A dividend ETF is any exchange-traded fund that invests in a basket of high-dividend-paying common stocks, preferred stocks or REITs in order to provide high yields -- but high yields are not always a safe yield. Dividends grow by a company’s growth either over time or quickly, which is seen when a company’s share price is cut in half. If growth is over time, the yield is desirable, but if growth is quick yield, be careful because this means the stock is in trouble.
Thanks to diversification, consequences of dividend funds aren’t horrible. For example, if a high-yielding stock does go to zero, the effect on the fund’s performance and general yield would be blunted. However, if funds invest in an entire sector that typically has high yields, then you may experience trouble. That’s why it is a good idea to focus on more modestly yielding dividend funds that prioritize quality. Chasing high yields can be a gamble, but in the end, it is up to you as the investor whether you want to take a risk that could go either way.
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