Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some promising dividend-paying stocks to your portfolio, but don’t have the time or expertise to hand-pick a few, the ALPS Sector Dividend Dogs ETF 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 takes the “Dogs of the Dow” strategy and applies it more broadly, to a wider universe of large-cap stocks, including a variety of sectors.
ETFs often sport lower expense ratios than their mutual fund cousins. The ALPS ETF’s expense ratio — its annual fee — is a relatively low 0.40%. It yields close to 4%, too. The fund is on the small side, 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 is too young to have a sufficient track record to assess, but it did beat the S&P 500 over the past year. 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.
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.
Kind of by definition, dog-designated companies generally won’t have had strong performances over the past year. Nuclear power specialist Exelon Corporation (NYSE:EXC) sank 12% — and slashed its dividend by 41% a few months ago, though it’s still yielding 4.2%. The company has been hurt by the relatively high cost of nuclear energy in an environment of very low gas prices, but it’s positioning itself for growth, and is involved in other energy-generation businesses, too, such as solar and wind power. President Obama’s climate-change policies may help the company, too. On the negative side, though, demand for electricity hasn’t been growing much.
Telecom company CenturyLink, Inc. (NYSE:CTL) shed 4%, and recently yielded 6.1% (which reflects a dividend cut of about 25% as the company focuses more on share buybacks). The company landed a hefty Pentagon contract in April, with a possible 10-year value of $750 million, and has been moving into promising arenas such as cloud computing (via its purchase of SAVVIS). The company has substantial debt, though, topping $19 billion, but also significant free cash flow, near $3 billion annually. Its EPS has been rising in the past few years, but revenue growth is mixed.