Dividend ETFs: Will They Be Crushed By An Obama Presidency?

In the 89th edition of the Festival of Stocks, you'll find a variety of features on dividend investing. Most of them will focus on individual company picks.

For instance, one writer in the "Festival" is fond of Harley Davidson (HOG) because it trades at a discount to its historical P/E average and the company has grown its dividend for 14+ years. Another author recognizes American Capital Strategies (ACAS) for its dividend growth rate and exceptional yield.

Yet there's a more pressing concern for dividend investing in general; that is, investors wonder whether Obama would seek to raise taxes on dividends up from the current level of 15%. And, if that were to happen in an Obama presidency, how might that affect dividend stocks.

Many have already predicted a huge sell-off for stock assets in an Obama presidency. Indeed, Obama has suggested that he would tax dividends at marginal income tax rates and raise the tax rate on long-term capital gains back to 28%. (Keep in mind, what's said on the campaign trail typically stays on the campaign trail.)

What's more, the stock market is not a one-trick pony. It doesn't move higher or lower due to political risks alone. Therefore, it is premature to assume that investors would abandon higher-yielding companies due solely to an increase on the taxes owed for investing in those companies.

It may be more critical to evaluate how an Obama presidency will affect certain segments of the economy. For instance, health care and "old energy" may be easy to dissect; that is, Obama initiatives are likely to target the drug makers for more affordable prescription drugs, while the government might also stake a larger claim to "Big Oil's" profits.

Still, is the demand for oil going to drop off a cliff because our government may ultimately take a bigger chunk of Exxon-Mobil's money? Will the demand for medications disappear, simply because the government will want a bigger piece of pharmaceutical profits? Profit margins for health care and traditional energy would likely drop, but demand may keep investors intrigued.

More importantly, perhaps, families need to invest for their future. It follows that we need to find ways to increase our fortunes... taxation warts and all.

And so it will go with dividends. Regardless of tax policy or business-unfriendly moves, investors are going to want something they can rely on (like dividends).

Here are a number of "Dividend ETFs" that are worthy of the risk-reward relationship:

1. WisdomTree Emerging Market High Yield (DEM). I discussed WisdomTree's DEM in detail in yesterday's column. As long as the U.S. slow-growth environment doesn't become a severe recession, the global growth story will continue. This dividend ETF with an SEC 30-day rolling yield of 5.5% has been less volatile than its emerging market competitors.

2. State Street SPDR S&P International Dividend ETF (DWX). This fund tracks an index of 100 companies, each of which had to have 5 years of profitability and earnings growth. It is less expensive at an annual expense of 0.45% than similar international dividend funds. And it pays out a higher annual yield at 7.6% (quarterly). Learn more about DWX from my April commentary.

3. iShares Dow Jones Select Dividend Index (DVY). This one represents the 100 highest paying dividend companies, 2/5 of which are financial companies. That has hurt DVY over the last year tremendously. However, DVY now pays a 4.25% yield... far better than treasuries or CDs. (This one appears in my editorial, "The Best Sector ETFs for the the Economic Recovery.")

Even better, Obama is likely to support federal relief for homeowners. In so doing, greater "mortgage loan relief" could stabilize home prices and bring buyers back to real estate. How much would Bank of America, Wells Fargo and JP Morgan Chase benefit from an increase in sales volume?

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.