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Warren Buffett (Matt Sayles/Matt Sayles/AP)
Warren Buffett (Matt Sayles/Matt Sayles/AP)


A dividend ETF to make Buffett proud Add to ...

This year, Warren Buffett's $47-billion (U.S.) fortune placed him behind only telecom giant Carlos Slim and Microsoft founder Bill Gates on Forbes' list of the world's billionaires.

However, Mr. Buffett's massive wealth can not be attributed to an ample salary. For the past 25 years, Mr. Buffett's annual compensation for running Berkshire Hathaway has been only $100,000. Given this relatively meager pay, the investor has had rely on different methods of generating income.

Mr. Buffett has made the most significant portion of his fortune simply through holding shares of Berkshire Hathaway stock. Shares of this textile mill-turned-world renowned investment conglomerate have soared since Mr. Buffett first took the helm, pocketing the investor billions.

Today, Mr. Buffett's 350,000 Berkshire Hathaway A Class Shares account for approximately 95 per cent of his total wealth.

The remaining 5 per cent of Mr. Buffett's riches have been earned from other sources, including his personal investments.

While the investor has typically been known for managing Berkshire's legendary portfolio, Mr. Buffett also commands a separate, personal portfolio on the side valued at $1.8-billion.

Within this portfolio, Mr. Buffett holds multimillion-dollar stakes in companies including Johnson & Johnson , Kraft , Proctor & Gamble , United Parcel Services and General Electric .

Aside from the strong stable returns earned from these large-cap household names, Mr. Buffett's personal portfolio holdings also provide the investor with an impressive quarterly dividend.

So far, 2010 has been a good year for Mr. Buffett and other dividend-seeking investors. As of March 10, nearly 10 per cent of the S&P 500 companies increased their dividends and additional hikes appear to be on the horizon.

According to a report from Robert Miles, author of Warren Buffett Wealth, the Buffett personal portfolio generated last year a 2.3 per cent yield that amounted to a nearly $43-million payout.

Today, using ETFs, investors can follow Mr. Buffett's lead and gain exposure to strong dividend-paying companies. My favorite play on this asset class is the iShares Dow Jones Select Dividend Index Fund .

DVY is designed to track the Dow Jones U.S. Select Dividend Index that is made up of over 100 top dividend-paying companies, including McDonalds , Lorillard , Chevron and Eaton Vance .

The fund's sector breakdown shows particularly heavy focus on utilities firms, which accounts for over a quarter of the total index. Other dominant industries include consumer goods, industrials and financials which together account for another 50 per cent of the fund.

In 2010, DVY has managed to beat out the broad U.S. markets. The fund has gained over 7 per cent while the SPDR S&P 500 ETF has gained slightly over 6 per cent. While its performance against the broad market is notable, DVY's real claim to fame is its quarterly dividend. In the past year, investors holding the fund recieved an approximately 3.5 per cent yield for an even greater percentage payout than that of Warren Buffett's portfolio.

DVY is a strong, liquid fund investors can use to generate comfortable yields comparable to those earned by Mr. Buffett. However, investors can also use the stability and diversification of DVY to create a strong base for building a successful ETF portfolio.

Feel free to share your own favorite divided yielding products in the comments section below.

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