Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to load up your portfolio with dividend-paying stocks in order to create an income stream for yourself, the Russell Equity Income ETF (NYSE: EQIN) 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 promising dividend payers simultaneously. (Remember, companies that pay higher dividends tend to deliver higher returns.)
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Russell ETF's expense ratio -- its annual fee -- is a relatively low 0.37%. The fund is rather small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF is too young to have a sufficient 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.
What's in it?
Plenty of dividend-paying companies have delivered strong performances over the past year. Intel (Nasdaq: INTC) surged 45%, and is still offering a tasty yield, which was recently near 3%. It's a powerful giant, with market share more than three times bigger than its nearest peer. Some worry, though, that Intel won't keep up the pace in the mobile market.
Qualcomm (Nasdaq: QCOM) is another giant, specializing in wireless chips and technology patents. Its yield isn't the biggest, recently being at 1.5%, but it's been growing at a double-digit rate; the company's prospects seem promising. Qualcomm got good news when a consortium of companies interested in grabbing baseband chip market share disbanded -- though bears still worry about other competitors, such as NVIDIA.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. General Electric (NYSE: GE) was roughly flat over the past year, but has been investing in new technologies, such as alternative energies. It's also investing in more traditional energies -- in rapidly growing emerging markets. GE cut its dividend sharply in 2009, but has been growing it aggressively since then, and recently yielded 3.5%.
Database software giant Oracle (Nasdaq: ORCL), meanwhile, shrunk by about 11%, but near-term projections from its usually conservative management have been quite bullish. Its dividend yield near 0.8% is rather paltry, but it has a lot of room to grow, with roughly $30 billion in cash and short-term investments in company coffers. Bulls like its huge market share and solid financials, but some bears worry that its offerings may not be suitable to serve the emerging cloud computing market.
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 5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these 12 Dividend Stocks for 2012.
