Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect most dividend-paying companies to keep paying out cash to shareholders over time, the SPDR S&P Dividend ETF (NYSE: SDY ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The dividend ETF's expense ratio -- its annual fee -- is a relatively low 0.35%. Its dividend yield is around 3.2%.
This ETF has performed reasonably, slightly beating the S&P 500 over the past five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Abbott Labs (NYSE: ABT ) , up 17% in 2011, sports strong fundamentals, but plans to split in two soon. Its new pharmaceuticals-only entity will be depending on anti-inflammatory-disease drug Humira for a huge chunk of earnings, which is a bit risky, as it faces competition from Rigel Pharmaceuticals, Pfizer (NYSE: PFE ) , and others. Abbott has been a long-term dividend powerhouse.
Other companies didn't add as much to the ETF's returns this year, but could have an effect in the years to come. Telecom specialist CenturyLink (NYSE: CTL ) lost about 17%. It covers a lot of rural territories, and like competitors Frontier Communications (NYSE: FTR ) and Windstream (Nasdaq: WIN ) , has been challenged by many consumers dropping their fixed landline phones for cell phones in recent years. But these companies can offset that by shifting their focus in part to business and broadband services. And for now, they're paying hefty dividends.
Aflac (NYSE: AFL ) , down 20%, is Japan's top insurer. Known for its strong leadership, it has been growing its dividend aggressively. Some think that the company's stock was unfairly punished because of worries about Japan's earthquake and tsunami aftermaths -- it has since fallen further, to rather attractive levels.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Learn about the best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these 10 Stocks for Your Retirement Portfolio.
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