Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some big dividend payers to your portfolio, the Global X SuperDividend ETF (SDIV 1.21%) 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 Global X ETF's expense ratio -- its annual fee -- is 0.58%. It recently yielded close to 7%, a considerable payout.
This ETF is too young to have a meaningful 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.
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. Diversified REIT Starwood Property Trust (STWD 0.40%) surged 44%, for example. It specializes in commercial mortgages and debt, and recently posted a surprisingly good earnings report. The company has been boosting its volume, originating and purchasing more than $1 billion in debt in its recent fourth quarter. It yields 6.2%.
Mortgage REIT Chimera Investment (CIM 0.46%) gained 25% and yields a whopping 11.3%. It has been profiting by taking on more risk than many of its brethren, but it generated a lot of concern in the investment community due to accounting irregularities and its not filing reports on time. My colleague John Maxfield has reviewed some just-released information and finds issues of “competence and not integrity,” which doesn’t exactly inspire confidence. Some have wondered whether Annaly Capital Management might fold Chimera into itself, as it already owns a chunk of the company.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Pitney Bowes (PBI +0.39%) shed 6% -- and yields 9.5%. While you may just think of it as a postage-meter business threatened by the growth of digital communications, the company actually has other less-threatened and higher-margin businesses, such as providing geocoding software to Facebook and others. It posted estimate-topping quarterly results in January and its single-digit P/E ratio is enticing, but it does carry some risks and considerable debt, and its hefty dividend may end up reduced. The stock is heavily shorted as well.
Penn West Petroleum (NYSE: PWE) sank 40%, and yields 9.4%. While that might make your heart beat fast, know that the company is paying out about three times more than its earning per share. Penn West, which drills for both oil and gas, has been struggling in an environment of low natural gas prices and has been selling some assets to improve its financial condition and invest in light-oil resources. Its development of oil sands is promising, and management recently noted that, “As we have highlighted, the combination of our light oil asset base with strong and capital efficiency and production performance will maximize the value for our shareholders as we move through into 2013.”
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.
