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 PowerShares High Yield Equity Dividend Achievers Portfolio ETF (PEY 0.61%) 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 ETF is based on the Mergent Dividend Achievers index, which features companies that have upped their payouts annually for at least 10 years.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.60 %. Its yield was recently a solid 4%, too. The fund is fairly small, 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 ETF has a mixed performance record, beating the S&P 500 over the past three years, but lagging it over the past five. 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.
More than a handful of dividend payers had strong performances over the past year. Domestic tobacco giant Altria (MO +2.88%) surged 22% and yields about 5.3%. Its future may not be as bright as its past, though, due to a shrinking smoker base in the U.S., coupled with more folks moving to discount cigarettes and rising taxes and regulations. A steep payout ratio may keep its dividends from rising briskly.
New York State-based regional bank Arrow Financial (AROW 1.08%) gained 12%, despite facing challenges posed by persistently low interest rates. The stock yields 4.1%, and some worry about shrinking margins. The company has been executing some share buybacks in recent years.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Pitney Bowes (PBI 0.73%), known for its postage-meter business, sank by 34% and recently yielded a whopping 13.9% as the stock trades near a 52-week low. The company has been struggling with electronic communications replacing many mailed communications. Its revenue has been shrinking, but thanks to cost cutting, its earnings haven't shrunk. It's involved in other less-threatened and higher-margin businesses as well, and has a new CEO hailing from IBM (IBM 2.20%).
New England-based bank People's United Financial (PBCT +0.00%), up just 4%, has been growing via acquisitions and has a solid commercial banking business, but it has several red flags, too, such as a steep tier-1 risk-adjusted capital ratio and a high net noninterest expense. It's also among the least-efficient regional banks, by its efficiency ratio. It yields about 5.2% these days and is aiming to buy back a lot of its stock.
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.
