However, there are both advantages and disadvantages to dividend ETFs.

Advantages

If you have a few thousand dollars to spend on an investment, this might be just the right vehicle for you. The main reason is the money you will save on commissions by buying a single ETF containing a basket of dividend-yielding stocks versus buying those stock individually. This strategy can save you a lot of hassle as well.

Disadvantages

But it’s worth considering the disadvantages too. One of the main disadvantages is that with the ETF, you will probably only receive dividend payouts once per year, whereas with the individual stocks, you are more likely receive them every month. Secondly, you have less control over the individual stocks you would like to invest in. If there is a particular stock included in the ETF that you don’t like, well that’s tough.

So say for example the ETF includes some stocks in the financial sector and you are bearish on the financial sector at the moment, you either have to get out of that ETF completely, or ride out what might be a difficult time for that particular sector.

Another disadvantage is that you have no control over the weighting of stocks within the ETF. If you prefer to have equal weighting across your portfolio for example, this is difficult if you are investing using ETFs.

The final disadvantage is that it only takes one very poorly performing stock to bring the overall value of the ETF down.

In conclusion, dividend-paying ETFs can be great if you want a no-hassle, cheap to run investment. But if you want more control, stick with investing in individual companies.

For more details, visit Voices in Finance.

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