When I looked at DVY on Yahoo it showed only a 2.13% yield. Is Yahoo wrong? Probably. One of the articles said that the Dow Jones div. yield was 2.13% (coincidence?)and that the DVY yield was 3.85%. Of course even using the higher value you still pay a .40% annual fee, thereby giving up a chunk of the yield.. and for what would appears to be very little added value. With on-line brokerage fees as low as they are, and depending on the amount of you investment, you may be better off doing a stock screen and selecting your own set of high-yield stocks.
At first sight, it makes sense what you say. I am not a fan of index funds (Except for the Vanguard STAR fund. I own about 25% of my total holdings in this one. It is a balanced fund, hold other Vanguards funds, about 65% stock and 35% cash and bonds, and it returned 19% last year.).
I went to check how they pick their stocks from the Index and the companies they choose are screened for quality before to join the fund. Some of the criterias are that the company must have increased its dividends for 5 years and a payout ratio under 60% for 5 years at least too. The fund is very heavy on utilities, chemicals and tobacco. It is spread also among large, mid, and small companies. They have good companies that I would hold (and I am holding too) in my portofolio (i.e.:MO, LYO, PBKS).
I know I am taking counter-position of what people say, but I am just doing the Devil's advocate. Please continue to shoot negative and positive points of view.
Thank you for your input. I think you are right all along except for one small thing: It may suits for people wanting to do some indexing and getting "bush-tax type" income. The .40% fee is in line with the index-funds and it is a small fee to pay to hold a portfolio on 50 stocks paying dividends.