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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some growing, dividend-paying stocks to your portfolio but don't have the time or expertise to hand-pick a few, the WisdomTree U.S. Dividend Growth ETF (NASDAQ: DGRW ) 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. It focuses on dividend-paying stocks with significant long-term expected earnings growth as well as solid returns on equity and assets.
ETFs often sport lower expense ratios than their mutual fund cousins. The WisdomTree ETF's expense ratio -- its annual fee -- is a low 0.28%. It yields about 2%.
This ETF is too new for us to be able to infer much from its performance. It's the future that counts most, of course, and as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
The power of dividend investing is often underappreciated. They can be powerful portfolio supporters, providing income even during market downturns. Consider parking them in an IRA, too, to postpone or avoid taxes on dividends.
More than a handful of dividend-paying and growing companies had strong performances over the past year. Cisco Systems (NASDAQ: CSCO ) surged about 57%, with many excited about its $2.7 billion acquisition of network security specialist Sourcefire. The stock yields 2.6% and the company reports its quarterly earnings tomorrow, with some bullish analysts having already upgraded the company. Cisco has been restructuring itself and integrating its various business lines, such as cloud computing, video communications, and mobile devices.
United Parcel Service (NYSE: UPS ) gained 19%, and with a yield of 2.8% is trading near a 52-week high. Many are bullish on UPS's future because of the continued growth of e-commerce, which means growing numbers of delivered ordered. The company is chasing new revenue sources, too, such as 3-D printing, which it will be offering in its stores. Meanwhile, though, UPS has been experiencing weakness in its high-margin next-day service and its second-quarter report featured earnings down a bit over year-ago levels on weakness in freight and international deliveries.
Other companies didn't do as well last year but could see their fortunes change in the coming years. Domestic tobacco giant Altria (NYSE: MO ) , for example, gained 5% and yields 5%. Altria's future isn't likely to reward shareholders as much as its past did, as the company faces issues such as rising taxes, regulations, competition from discount cigarettes, a shrinking smoker base, and even counterfeit cigarettes. In its latest quarter, revenue shrank 3.8%, while earnings rose 5%. Meanwhile, some fear that the FDA might tighten regulations on, or even ban, menthol cigarettes, which drive a lot of revenue. A possible revenue booster is the growth of electronic cigarettes. Abandoning the Altria ship is probably premature, though, as the company still has many millions of literally addicted customers.
Caterpillar (NYSE: CAT ) was roughly flat, with the company having delivered a disappointing second-quarter report, featuring revenue and net income down 16% and 43%, respectively. Its CEO sees the company doing "very well" operationally: "We've taken action to aggressively lower costs, and we've been successful in the marketplace with end-user demand for Cat machines outpacing the industry overall. In addition, our business in China improved." Meanwhile, with a forward P/E ratio around 10 and a current P/E near 14, the stock seems undervalued, and management is making the most of that, aggressively buying back $2 billion of stock recently. It also raised the dividend by 15%. A global economic recovery will boost Caterpillar's shares.
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.