High Dividend Stocks - These ETFs Are Better In Tough Times

Producing steady income for your investment portfolio can be difficult during tough economic times. When the markets are getting slammed and Europe is teetering on the brink of a financial collapse, putting your hard-earned money into high dividend stocks may not be the best decision. The loss in the underlying stocks will provide negative net returns in a down market. This is what happened to many investors in 2008 and 2009.

A better strategy right now is to consider diversifying across a wide variety of high-dividend yielding Exchange Traded Funds (ETFs). You can avoid the individual company risk from high dividend stocks, the downside of equities in a falling market, and these ETFs are more stable than stocks in these uncertain times. ETF funds trade just like stocks and so they can be easily bought and sold with any discount broker online and the fees are very small. Start with a small initial investment into each of them and then add money every month while also using the accumulated dividends to buy more over time.

These are my recommendations for outperforming high dividend stocks in these difficult stock market times.:

1) PFF - IShares S&P US Preferred Stock Index Fund (7.2% yield)

This ETF fund tracks closely to the S&P U.S. Preferred Stock Index and yields a strong 7.2% today.

2) HYG - IShares IBoxx High-Yield Corportate Bond (8.1% yield)

This ETF should still hold up better than stocks in a downturn and they do have a 20% allocation that can hedge a bit. The high-yield corporate is actually a reasonable value play here. The dividend is very high at 8.1% today.

3) LQD - IShares IBoxx Investment Corp Bond (4.6% yield)

The investment quality corporate bond fund has a solid yield of 4.6%. There is still some risk in a falling market with corporate bonds but the large diversification will provide more stability than individual stocks or individual corporate bonds.

4) PLW - Powershares 1-30 Laddered Treasury Portfolio (2.9% yield)

A way to take advantage of Treasury Bonds but to get a higher yield then buying them separately and being locked in over time is with this ETF. The fund invests in a variety of different maturity Treasury securities and yields around 2.9%. US Treasures are still the ultimate safe haven play in times of turmoil.

5) TIP - IShares Barclays TIPS Bond (4.2% yield)

To help with inflationary times and rising interest rates, you should look at investing in treasury inflation protected bonds or TIPS. IShares offers this exposure in an ETF and it yields almost 4.2% today. It has really performed well so far this year and is probably the safest investment for the foreseeable future.

6) PZA - Powershares Insured National Municipal Bond Portfolio (4.6% yield)

This fund is attractive because of its wide diversity, the fact that these are mostly high quality insured muni's, and due to a selloff after some headline scare hit the market at the end of 2010. While some individual muni bonds may find trouble in the future, this wide diversification should provide ample protection and safety. It's dividend yield is paying out a very solid 4.6%.

There will be better times to buy high dividend stocks and they still are a good investment vehicle over time. In fact, I have even recommended some excellent value high dividend stocks in other articles that should be scaled into during this market turmoil. However, for more safety and peace of mind over the next few months and probably much longer, I recommend you consider investing in the very high-yield income ETF funds that I covered above.

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Keith Hugenberg is the CEO of Jalexa Trading Consultants LLC (Momentum Rider), a stock trading and investing educational and consulting company.

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