Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some dividend payers to your portfolio, the WisdomTree Dividend ex-Financials ETF (DTN -0.09%) 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.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The WisdomTree ETF's expense ratio -- its annual fee -- is a low 0.38%. Its yield was recently 3.6%.
This ETF has performed rather well, beating the S&P 500 over the past three and 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.
Why dividends?
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.
Plenty of dividend-paying companies had strong performances over the past year. Southern Copper (SCCO -0.37%) jumped 30%, for example, recently hitting a 52-week high. Don't get too excited by its recent 29% dividend yield (yes, that's right) – it reflects a one-time legal windfall being distributed to shareholders. (Its five-year average dividend yield is about 6%.) The company carries more debt than many peers, but it's aiming to boost its production by investing heavily in capital projects, and it may generate a lot of revenue in copper-hungry China, which has recently announced a $280 billion infrastructure spending plan. Some expect rising demand for copper to be paired with rising prices due to lower inventory levels, too.
CenturyLink (LUMN -5.15%), recently yielding 7.5%, gained 18% over the past year. America's third-largest telecom company has been streamlining itself and investing in some big acquisitions. It bought Qwest and SAVVIS last year, with the latter bringing in cloud-computing exposure. The company's heavy debt and not-so-promising landline business is a concern, though revenue has been growing briskly, as has free cash flow. Still, earnings have been shrinking, and the share count is rising, too. The company expects investments to convert from copper to fiber-based connectivity to pay off in the long run.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Landline and rural specialist Windstream (WINMQ) shed 13%, for example. It's burdened with considerable debt (close to $9 billion) -- which worries those drawn to its 10.4% dividend yield. It does generate significant free cash flow, though, and revenue has been growing, as well, though net income has been shrinking in recent years. Windstream has also been making some strategic acquisitions, and is aiming to boost its services to businesses. Still, it's reasonable to question whether its dividend will be maintained.
Frontier Communications (FTR), also focusing on rural regions, sports a dividend yield of 8.4%, and its stock has slumped 16% over the past year. Falling subscriber rates have been a problem, along with steep debt. In response, the company has already reduced its dividend. Still, while its landline phone business isn't the most attractive, it's also developing its broadband offerings. Frontier acquired Verizon's rural business, and does generate a lot of considerable cash flow. Investors got some good news recently, as the company upped its network speed, which should please customers.
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.
