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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect dividend-paying stocks to keep generating cash for shareholders over time (and increasing those payouts, too), the First Trust Morningstar Dividend Leaders ETF (NYSE: FDL ) 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.
ETFs often sport lower expense ratios than their mutual fund cousins. The dividend ETF's expense ratio -- its annual fee -- is a relatively low 0.45%.
This ETF has a mixed performance record, lagging 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.
With a low turnover rate of 30%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several stocks this ETF owns have seen strong performance over the past year. Abbott Labs (NYSE: ABT ) , up 21%, sports rising profit margins and strong fundamentals and plans to split into two parts soon. Its new pharmaceuticals-only entity will be depending on anti-inflammatory-disease drug Humira for a huge chunk of earnings, though, and that can be a bit risky, as it faces a lot of competition.
Southeastern utility specialist Southern (NYSE: SO ) gained 24% and appears to be on a roll, with revenue and earnings growth picking up recently, and a dividend yield topping 4%. Fellow energy concern PPL (NYSE: PPL ) gained 14%, pleasing some with its $6 billion purchase of German utility E.ON AG's U.K.-based power infrastructure, but leaving others less than thrilled because of the stock dilution resulting from this and other purchases.
Other companies didn't do as well but could have better years in the future. Merck (NYSE: MRK ) advanced only about 9% and is losing some income because of price reductions mandated by recent health-care reforms. With some blockbuster drugs losing their patent protection, the company hadn't raised its dividend in several years, but it did recently bump it up by 11%.
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.