Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some dividend-paying stocks to your portfolio, the SPDR S&P Dividend ETF (NYSEMKT:SDY) 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.
ETFs often sport lower expense ratios than their mutual-fund cousins. The dividend ETF's expense ratio -- its annual fee -- is a relatively low 0.35%. Its dividend yield is about 3.2%.
This ETF has performed 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.
With a low turnover rate of 25%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
The power of dividend investing is often underappreciated. Dividend-paying stocks 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 companies had strong performances over the past year. Abbott Labs (NYSE:ABT) advanced 25%, for example, and recently yielded 3.2%. It will soon be splitting its pharmaceutical business from its nutrition and devices businesses, which some expect will unlock more value for investors. Others, though, worry that the pharmaceutical operation is too dependent on its $8 billion drug, Humira. A concern with many big drug companies is the upcoming patent expiration on their blockbuster drugs. Abbott seems to be in better shape than its peers on that count, though. Another plus for Abbott is its profitable businesses in fast-growing emerging markets.
Emerson Electric (NYSE:EMR), up 7% and yielding 3.4%, has cut back its projections for the year as it fights sluggishness in Europe and pressure on profits from a strengthening dollar. Some analysts are lukewarm on it, but it sports a solid growth rate, a reasonable valuation, and a great dividend track record. It's also expanding its scope, serving marine vessels, for example, via an acquisition from Johnson Controls (NYSE:JCI). Its last quarter saw unexciting sales growth but strong profit margins -- even in a difficult economic environment.
Walgreen (NASDAQ:WBA) advanced 5% and recently yielded 3.4%, finally having reconciled with pharmacy benefits manager Express Scripts (NASDAQ:ESRX). The severance of that relationship cost Walgreen gobs of customers and billions of dollars. Walgreen's fundamentals are a bit mixed, but its future looks bright, with strong cash flow and expansion in Europe. It also stands to benefit from health care reform, as more insured Americans will tap its services.
Other companies didn't do as well last year but could see their fortunes change in years to come. Pitney Bowes (NYSE:PBI), known for its postage-meter business, shed 30% and recently yielded a whopping 13.7%. Savvy investors know that a sky-high yield is often tied to a troubled business, and this company is indeed struggling with electronic communications replacing mailed communications. Its revenue has been shrinking, but thanks to cost-cutting, its earnings haven't shrunk. It's involved in less-threatened and higher-margin businesses, as well.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies and make investing in it -- and profiting from it -- that much easier.