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Solid Dividend Leaders, in an Easy Package

Wednesday - 1/9/2013, 2:18am  ET

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 First Trust Morningstar Dividend Leaders Index 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 basics
ETFs often sport lower expense ratios than their mutual fund cousins. The First Trust ETF's expense ratio -- its annual fee -- is a relatively low 0.45 %. It also recently sported a solid 3.8% dividend yield.

This ETF has performed  reasonably 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.

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 solid performances over the past year. Sysco gained 14%, for example, and recently yielded 3.5%. Hovering around a 52-week high, it's America's food distribution leader, with a market share of 17% . Business has slowed due to rising food prices and sluggish restaurant traffic, but an improving economy should boost traffic, benefiting Sysco. Meanwhile, it's a dividend titan, and has been able to maintain its profit margins while cutting costs. It's planning to expand internationally, too.

Waste Management , a giant in the critical garbage and recycling business, advanced 8% and yields 4.2%. Its recycling activities hold a lot of promise, and its big network of landfills gives it an edge. Converting waste into energy is a win-win proposition, benefiting the company as well as society. Some would also like to see it growing a little faster, despite weakness in the U.S. economy and many cash-strapped municipalities. Some think it's not cheap enough right now, but others point to prodigious cash flow.

Utility company PPL (think "Pennsylvania Power and Light") rose 7% and yields 4.9%. 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. Its capital spending has driven up its debt  burden, however, and the company's Pennsylvania operations got whacked by Hurricane Sandy.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Freeport McMoRan Copper & Gold sank 6%. It has been hurt by low copper prices, higher costs of production, and global economic slowdowns, such as in China. On the plus side, it's a low-cost producer of copper and molybdenum, positioned  to benefit quickly from upturns in metals pricing as well as from a housing recovery. Freeport has a lot to offer patient investors, including a 3.5% dividend yield, and it's looking to expand into new revenue-generating areas, in part by buying oil and gas concerns Plains Exploration & Production  and McMoRan Exploration

The big picture
A well-chosen ETFcan grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

This article was originally published as Solid Dividend Leaders, in an Easy Packageon Fool.com

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