Here we go again. With Europe teetering on the brink of recession, China's manufacturing base softening, and a toxic U.S. jobs outlook, investors once again turn to income-generating stocks, and a few energy giants at are at the top of the list.

By and large, “income” is generally derived from dividend-paying stocks, which investors are mopping up with increased regularity.

Since mid-May, when oil prices, and stocks in general, began losing steam, big dividend exchange-traded funds like SPDR S&P Dividend (SDY), Wisdom Tree Dividends (DTN), and Vanguard High Dividend Yield (VYM) have risen significantly, after two months of steady losses as dividend stocks fell out of favor in a hard-charging stock market.

-----------------------------------------------------------------------------------------------------------

Dividend ETFs Rising From May To June, 2012

Fund May 15 Share Price June 12 Share Price YTD

SDY $53.5 $55.5 5.95%

DTN $50.00 $52.25 5.97%

VYM $45 $47 7.79%

-----------------------------------------------------------------------------------------------------------

All of these big income-producing funds were off by 10% or so from April to May, 2012 -- just as oil prices and the stock market began to give back gains accumulated through the first quarter or so of 2012.

So why the rebound in dividend stocks -- specifically, oil and gas income-producing stocks?

Off the top, here are a few reasons why:

  • Oil companies’ focus on the long haul -- Higher prices should still be a factor five to 10 years down the road, even as the current oil-price trends point downward. That’s primarily due to demand. Economists and investors can reasonably expect that institutional and retail consumers will still have a healthy demand for oil and gas 10 years from now. That’s a security blanket that allows oil companies to provide sweeteners in the form of dividends to attract more investors -- even in periods of low oil prices.
  • Investors usually hang on to dividend stocks -- Oil companies know that their investors are a loyal lot, and will hang on to their dividend-yielding stocks. In an economy that’s throwing nickels around like manhole covers, cautious investors -- think pension funds or even grandmothers living on a few investments and social security -- come to depend on that 3% or 4% yield they get on their dividend stocks. With that money almost always in the till, oil companies have the cash and incentive to offer good dividend yields.
  • Dividend stocks beat U.S. Treasuries -- Oil company executives have one other piece of leverage with investors -- they’re a better deal than Treasury Bonds. Consider a $10,000 investment in a 10-year treasury bond that pays 2% interest. After 10 years, you’ll get the $10,000 back, plus a 2% return on investment -- hardly enough to beat inflation.

That last point is no hyperbole. Take a $10,000 investment in a dividend-yielding stock like Royal Dutch Shell. RDS is offering a dividend yield of 4.70% on its stock price (of $63.00) as of June 12, and boasts a five-year average dividend yield of 4.80%. Investors can reasonably expect that a well-entrenched oil giant like Shell will be around and making profits for a while -- certainly for 10 years.

Then there’s the Chevron dividend story, and it’s an epic one. Consider these facts:

  • Chevron has made steady dividend payments for more than 100 years.
  • It has raised its annual average dividend yield every year for the past 25 years.
  • In the most recent quarter, Chevron hiked its dividend yield by 11.1%.

Still, it’s not easy for regular investors to leverage high-paying dividend stocks.

Individual stocks like ExxonMobil, British Petroleum, Chevron, Royal Dutch Shell, Conoco, and Occidental all offer the formula for good dividend plays -- regular cash flow, earnings and steady dividends -- but each stock isn’t exactly cheap to get into, and investors also have to watch out for unforeseen risks.

After all, nobody saw the 2010 Deepwater Horizon oil spill coming.

Not only did the spill cost 11 lives, 4.9 million barrels of oil, and the actual oil rig, which sank into the Gulf of Mexico, it drove British Petroleum’s share price down by 54% in the months following the spill, and ultimately cost BP more than $40 billion in costs. In addition, BP suspended its $0.84 quarterly dividend for 2010, and cut the dividend by 50% when it reinstated it in 2011.

That’s where dividend exchange traded funds can help. ETFs, by definition spread out investment risk, but also capitalize on dividend payouts.

Of course, not all ETFs are created equal. In general, ETFs that carry dividend yields over 3.00% may be worth a look. That could mean reviewing the Canadian Energy Income ETF, which offers a 3.90% yield, or the MSCI ACWI ex U.S. Energy Sector Index fund, which has a dividend yield of 3.13%, as of June 12, 2012.

Closer to home is the Market Vectors Oil Services ETF -- one of the largest oil ETF’s.

OIH has more than $1 billion in assets under management, and has 27 oil service providers in the fund, including Halliburton and Schlumberger. Along with a 6.60% year-to-date return, OIH offers investors a beefy dividend yield of 4.3% on an average annual basis.

Another idea would be oil and gas ETFs that focus on income. That could mean JP Morgan Alerian MLP ETN and Magellan Midstream Partners, two funds that invest in income-friendly master limited partnerships, where companies held in the fund usually pay out their earnings to investors as dividends.

No doubt about it, “income” is the watchword for energy investors as June turns to July. On Wall Street, that usually means a drive toward dividends, and that’s what analysts are seeing now. And, it’s what they could be seeing for the rest of 2012.