Growing Profits, Low Volatility, and Dividend Income
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some low-volatility stocks to your portfolio, the PowerShares S&P 500 Low Volatility 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.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is a very low 0.47 %. It also offers a dividend that was recently near 3%.
This ETF is too young to have a sufficient track record to assess, but it did underperform 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.
With a low turnover rate of 17 %, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
Those who are risk-averse might favor low-volatility stocks, as they'll tend to jump around less over time. This ETF features a lot of utility and consumer-products companies, as those can be defensive, not losing that much business during economic downturns.
More than a handful of low-volatility companies had strong performances over the past year. Domestic tobacco giant Altria jumped 20%, and yields about 5.4%. 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. Respected analysts at Steifel Nicolaus recently rated the stock a Buy, but my colleague Rich Smith disagrees.
Utility company PPL gained 8%, and recently yielded a solid 5%. It has been growing at a faster clip than many peers, with double-digit average annual growth rates for revenue and earnings over the past three years. (These rates have been accelerating, too.) Its U.K. operations are doing particularly well, and the company has been focusing more on regulated generation , which tends to be less risky. Bulls like its adoption of greener smart grid technology, while bears worry about its capital-spending-driven debt burden. The company's Pennsylvania operations got whacked by Hurricane Sandy.
Duke Energy also gained 8%, and recently yielded 4.6%. Its earnings have been growing at a good clip in recent years, but revenue has been growing rather slowly. The company's investments in renewable energy are promising -- it recently unveiled plans to build a massive solar farm in North Carolina, bought a Chilean hydro plant, and it has partnered on wind farms in Kansas. It recently completed its largest windpower construction projects, in Texas. Meanwhile, a Florida nuclear plant needs $3 billion or so in repairs, and some expect it to close the plant.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. The huge electric company Southern , for example, shed 1%, and recently yielded 4.6%. Its earnings have been growing more briskly lately, though the company does carry significant debt and its cash flow has been constrained due to investments in nuclear energy and "clean" coal. As is Duke Energy, Southern is planning coal-gasification plants .
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.
Altria has been the best-performing stock of the past 50 years, but as the number of smokers in the U.S. continues to steadily decline, is Altria still a buy today? To find out whether everyone's love-to-hate dividend stock is a savvy investment choice or a hazard to your portfolio, simply click here now for access to The Motley Fool's new premium research report on the company.
The article Growing Profits, Low Volatility, and Dividend Income originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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