Yesterday: Too Risky? Today: Too Safe?

September 2, 2010
Shirley M. Mueller, M.D.

Investors now may be too risk adverse, in part because they were previously taking chances that failed when the market fall. Perhaps a better approach is an in-between course, a way to gain whether the markets rises or falls.

Investing for the Short Haul suggests a protected approach to this volatile stock market. This brings up an important issue. Investors now may be too risk adverse, in part because they were previously taking chances that failed when the market fall. Perhaps a better approach is an in-between course, a way to gain whether the markets rises or falls.

One way is buying value stocks that pay relatively high dividends. They have low prices in relation to their fundamentals and compensate the investor in the form of yields paid out. By purchasing them, an investor can obtain income plus potentially exceed the total return of growth stocks over time (as some studies show).

Exchange Traded Funds (ETFs) are tapped into this concept. The value dividend paying funds in the list below contain three that are unique. They are the large value blend (PFM), foreign large value (PID) and the mid cap value (PEY). The other two, SDY and DVY, overlap as each offers large value weighted toward a medium size. Of the two, DVY is more depressed in terms of price relative to the last couple of years and could be a better buy.

Symbol

Description

Yield (%)

Expense Ratio

Turnover (%)

SDY

Large value (weighted toward medium size value)

3.84

0.35%

105

PFM

Large value blend

2.43

0.60%

31

DVY

Large value (weighted toward medium size value)

3.89

0.40%

51

PID

Foreign large value

2.14

0.57

50

PEY

Mid cap value

4.55

0.60

77

ETFs that are Value Designated and Pay High Dividends

These ETFs, when added to those in my previous column, A "Bucket List" for a Bear Market, offer a wide choice of dividend paying ETFs from which to choose.

Note that the “Bucket List” is composed of two value funds: Vanguard High Dividend Yield (VYM) and Vanguard Dividend Appreciation (VIG).

VYM is large value and VIG is large blend according to Morningstar category ratings. The other two on that list are not value, Vanguard Real Estate Investment Trust (REIT) the symbol of which is VNQ and Vanguard Intermediate Term Bond (BIV), which is a bond, not a stock ETF. One way to play dividend yielding value stocks is to buy them when the market is down as suggested in the Bucket List.

Another is to buy them when cash is available, especially in a tax advantaged accounts so the dividends won’t be taxed. Either way, they give income with value and hedge bets that the market will go up or down. If it rises, the stocks should too. If it dives, the dividend offers income and some protection from a total loss until better times.