Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you're looking for some strong dividend payers to add to your portfolio, the Vanguard Dividend Appreciation ETF (NYSE: VIG ) 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 a lot of them simultaneously. It recently yielded only about 2%, but it has a strong track record.
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is a very low 0.13%. (Vanguard is known for low fees.)
This ETF has performed reasonably well, beating the world market over the past five years, though lagging it so far this year. 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 14%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Plenty of big dividend payers had strong performances over the past year. Emerson Electric (NYSE: EMR ) and Praxair (NYSE: PX ) , for example, each gained 11%. Emerson, which specializes, among other things, in technology that improves energy efficiency, had a tough year last year, with flooding in Thailand disrupting its production process. Emerson is growing its climate-control business, and recently yielded about 3.3%.
Gas and surface coating specialist Praxair, yielding around 2.1%, has a lot of debt and recently issued $500 million more, admittedly at a low coupon rate of 2.2%. On the plus side, its revenue and earnings have been growing at a double-digit clip over the past year or so. In a recent conference call, management mentioned that currency exchange rates were hurting results. Management is also waiting for the European and Brazilian markets to turn around.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Caterpillar (NYSE: CAT ) sank by about 3%, while Walgreen (NYSE: WAG ) was roughly unchanged. Walgreen has finally mended its rift with Express Scripts, but not before losing billions of dollars and millions of customers. Its dividend yields more than 3%, and was recently hiked by a whopping 22%, but its revenue growth needs to pick up speed, perhaps by winning back many of the customers it lost. (To its credit, earnings have been on the rise, suggesting effective cost cutting.) Walgreen recently spent $6.7 billion on 45% of European drugstore chain Alliance Boots, which is likely to pay off when Europe turns around.
Caterpillar, meanwhile, seems quite strong, with revenue and earnings averaging 19% and 59% growth rates, respectively, over the past three years. With a yield near 2.4%, it has been a volatile stock lately, but its prospects are solid -- as the global economy improves, there will be more infrastructure and construction work requiring its machines. Already, its last quarter featured revenue up 21%.
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.
If Caterpillar intrigues you, check out our new premium research report on it, which details the opportunities and risks facing the company.