DVY vs PEY: 2 ETFs for Dividend

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.

In our past postings we discussed another such 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 but this year they have launched quite a number of new ETFs.
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.