Two ETFs for Dividend Income: DVY vs. PEY

Barclays Global Investors (BGI) is a big powerhouse in the business of
Exchange Traded Funds (ETFs). In November 2003 they launched an
ETF : "DVY". Its performance benchmark is the Dow Jones Select
Dividend Index which invests in 50 of the highest dividend paying stocks
(non-REIT) in the Dow Jones U.S. Total Market Index. DVY does not
invest in REITs (real estate investment trusts), because of the
unpredictable nature of their dividend distributions. A company can be
considered for the index if it has been paying dividends for five years and
has a high payout ratio (dividends in relation to earnings).

The reduction of tax (to only 15%) on dividend income by Bush
administration fuelled a strong growth and popularity of this ETF among
both individual and institutional investors. Last Thursday we introduced
to our readers a new ETF: "PEY", PowerShares High Yield Equity
Dividend Achievers Portfolio. PEY seeks investment results that, before
expenses, generally correspond to the price and yield performance of the
Mergent Dividend Achievers 50 Index. The Index is comprised of the 50
highest yielding companies with at least 10 years of consecutive dividend
increases.

The Wheaton, Illinois-based PowerShares is rather a new player in ETF
world. After this latest launch, they have just four ETFs, though there are
plans for several launches in 2005.

PowerShares' PEY could produce a higher yield, although with 50 stocks
in its portfolio, it has more risk from less diversification as compared to
100-stocks' portfolio of DVY. Another difference in investment strategy is:
PEY weights stocks by dividend yield, whereas DVY allocates its assets
among stocks based on the absolute size of the dividend.
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PBW, PowerShares' WilderHill Clean Energy Portfolio Overview ETF will
start trading today. We posted about PBW last week (look for the posting
among items in the sidebar).