Eric Dutram, ETF Strategist for Zacks Investment Research, advises folks to look at a fund's weighting methodology. Some funds pick their holdings based on the dollar value of dividends paid, not the percentage yield. Examples, Dutram says, are three WisdomTree ETFs: International Large Cap Dividend (DOL), Total Dividend (DTD) and International Large Cap Dividend (DES).
Dutram also notes that along with the "dividend aristocrats" targeted by such popular funds as SPDR S&P Dividend (SDY) and VIG, there will be some holdings that appear to have fairly low yields. That's sometimes because a steady dollar dividend divided by a sharply rising stock can produce a modest percentage yield. "If a company starts paying out a very small dividend but keeps increasing it year after year, it will likely find its way into this fund," says Dutram.
More broadly, Dutram advises investors looking for extra dividend income to seek out international dividend funds, as well as those that focus on preferred and convertible shares. Preferred shares are superior to common shares in claims to dividends (and claims on company assets in a bankruptcy), though they usually don't carry voting rights. The iShares S&P U.S. Preferred Stock Index fund (PFF) holds primarily preferred shares. Convertibles, the primary holding of the SPDR Barclays Capital Convertible Securities ETF (CWB), are typically high-yielding debt instruments that under certain conditions can convert to stock.