Make Money From Dividends and Stock Buybacks the Easy Way

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some companies offering significant dividends and stock buybacks to your portfolio but don't have the time or expertise to hand-pick a few, the Cambria Shareholder Yield ETF (NYSEMKT: SYLD  ) could save you a lot of trouble. Instead of trying to figure out which stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often feature lower expense ratios than their mutual fund cousins. This ETF, focused on dividends and stock buybacks, sports an expense ratio -- an annual fee -- of 0.59%. 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.

This dividends-and-stock-buybacks ETF is too young to have a meaningful track record to assess. 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.

Why dividends and stock buybacks?
It's smart to seek out healthy dividend-paying stocks, as they will deliver in good times and bad, and dividends tend to grow over time, too. Stock buybacks can also deliver for shareholders, reducing a company's share count so that remaining shares are worth more. (Not all stock buybacks are smart, though. A company buying back overvalued shares is actually destroying value.)

More than a handful of companies offering dividends and stock buybacks had strong performances over the past year. Seagate Technology (NASDAQ: STX  ) surged 63% and yields 3.1%. (It has more than quadrupled its dividend payout over the past five years.) Alongside rival Western Digital, Seagate Technology controls 85% of the hard-drive market. A shift toward 3-D NAND in the flash memory industry is likely to boost Seagate's fortunes, and its memory offerings can serve the growing big-data industry well. Between dividends and stock buybacks, Seagate returns about 70% of its operating cash flow to shareholders.

Marvell Technology  (NASDAQ: MRVL  ) jumped 58% over the last year and yields 1.5%. The chipmaker is benefiting from the strong growth in storage and mobile communications, as it counts among its customers leaders in various industries. (Seagate and Western Digital, for example, generated 36% of its 2013 revenue.) The growing LTE market in China will also serve as a tailwind for Marvell. The company was recently fined $1.5 billion in a patent lawsuit, but that was far less than was originally demanded, and Marvell is appealing the decision. The company topped expectations in its fourth quarter.

Frontier Communications (NASDAQ: FTR  ) gained 47% and yields a hefty 7.2%. It carries considerable debt, though, which could threaten that payout, and it doesn't appear to be performing as well as its peers. (Big interest payments can constrain stock buybacks, too.) Not helping its debt situation is its decision to buy AT&T's wireline business and statewide fiber network in Connecticut for $2 billion in cash. Frontier has been shifting its focus from landline operations toward higher-margin businesses such as broadband and serving business customers. Its fourth quarter featured roughly flat revenue, which was better than the loss that had been expected, while its earnings also delivered a surprise by growing a bit.

L-3 Communications  (NYSE: LLL  ) advanced 44.5% and yields 2.1%. While the company is more nimble than some rivals, it's also quite dependent on the U.S. government for much of its revenue and has been hurt by military spending cutbacks. Still, L-3 has been winning lots of defense contracts lately. Over the past few years, though, revenue, free cash flow, and earnings have been shrinking, as have operating margins. Bears don't expect 2014 to be as strong for the company as 2013.

The big picture
If you're interested in adding some companies offering dividends and stock buybacks to your portfolio, consider doing so via an ETF. 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.

9 rock-solid dividend stocks you can buy today
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2905924, ~/Articles/ArticleHandler.aspx, 8/31/2015 1:14:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 3:59 PM
FTR $5.08 Up +0.15 +3.04%
Frontier Communica… CAPS Rating: ***
LLL $106.97 Down -0.15 -0.14%
L-3 Communications… CAPS Rating: ***
MRVL $11.32 Up +0.20 +1.80%
Marvell Technology… CAPS Rating: ****
STX $50.68 Up +0.64 +1.28%
Seagate Technology CAPS Rating: ****
SYLD $30.15 Up +0.08 +0.27%
Cambria Shareholde… CAPS Rating: No stars