The 5 Best ETFs to Invest for 2013

Buying targeted dividend ETFs is easier than buying high-yield dividend stocks.
Dividend stocks were red-hot last year as the über-volatile market sent investors headlong into what has traditionally been the most stable segment of the equity universe. And while it isn’t likely we’ll see quite as much volatility in 2012 as we did in the final four months of 2011, powerful unknowns, such as Europe’s unresolved debt issues and China’s economic slowdown, could put real pressure on global economic growth — and by extension, the fate of the world’s equity markets. That means we could be in for an extended period of volatility and more capital inflows into the dividend space.
As investors, we can buy a well-thought-out group of solid, high-profile dividend stocks to gain exposure to the segment. But it’s easier to buy targeted dividend ETFs that already contain baskets of the best — and highest-yielding — dividend-paying securities.
The 5 Best ETFs to Invest for 2013 - iShares Dow Jones Select Dividend Index
The iShares Dow Jones Select Dividend (ETF) (NYSE:DVY) is an ETF pegged to the Dow Jones index bearing its name. This ETF really saw gains during the final three months of 2011, perhaps the most volatile time for stocks all last year. The fund surged 11% over that period, and that gain came with a 3.44% annual yield (as of Jan. 13). DVY counts among its top holdings such stellar corporate names as Lorillard (NYSE:LO), Chevron (NYSE:CVX), Kimberly-Clark (NYSE:KMB) and McDonald’s (NYSE:MCD), to name just a few. The fund’s expense ratio is only 0.40%, making the cost of owning these high-end performers very attractive.
SPDR S&P International Dividend
International stocks were by no means the best performers last year, but that didn’t stop the SPDR S&P International Dividend (ETF) (NYSE:DWX) from delivering a solid dividend yield of 4.02%. DWX’s expense ratio is 0.45%, just slightly higher than the domestic-equity focused DVY. For this modest cost, you get diversified exposure to international dividend stocks in income sectors such as telecommunications, utilities and financials.
The 5 Best ETFs to Invest for 2013 - WisdomTree Equity Income Fund
WisdomTree Equity Income Fund (NYSE:DHS) enjoyed a good year, and it performed particularly well in the final quarter. The fund is up almost 8% over the past three months, and that comes with an annual yield of 3.31%. Its holdings are based on WisdomTree’s Equity Income Index, which reads like a Who’s Who of dividend stalwarts. Companies such as AT&T (NYSE:T), General Electric (NYSE:GE), Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG) top the list of payout performers you get when you own DHS. And at an expense ratio of just 0.38%, you get these great companies on the cheap.
The 5 Best ETFs to Invest for 2013  - iShares S&P U.S. Preferred Stock Index Fund
The iShares S&P U.S. Preferred Stock Index Fund (NYSE:PFF) is an ETF that gives you exposure to preferred stocks. I like this fund primarily because of its outstanding 6.99% yield, but I also like it because it diversifies your income portfolio by owning the preferred shares of some of the world’s best companies. HSBC Holdings (NYSE:HBC), General Motors (NYSE:GM), Wells Fargo (NYSE:WFC) and many others have issued high-yield preferred shares, and the easiest and cheapest way to own these equities — at an expense ratio of just 0.48% — is to have PFF in your portfolio.
The 5 Best ETFs to Invest for 2013 - Claymore/Zacks Multi-Asset Income Index
Clamymore/Zacks Multi-Asset Income Index (ETF) (NYSE:CVY) is perhaps the most eclectic fund of my five best ETFs for 2012. CVY has had a great run over the past three months, vaulting nearly 6% while offering an annual yield of 5.42%. One huge reason to love CVY is that it contains a host of different types of high-yield securities. In addition to domestic and international stocks, the fund holds real estate investment trusts, master limited partnerships, closed-end funds, Canadian royalty trusts and traditional preferred stocks. Owning CVY gives you the best of the best when it comes to income securities at a quite acceptable 0.78% expense ratio

Banking is back in Latin America

SAN FRANCISCO (MarketWatch) � Banking is back in Latin America. While most of the rest of the world is still recovering from the global financial crisis of 2008, Latin American banks have recovered.

Five factors have fueled that growth: a growing middle class, access to banks for the previously �unbanked� population, growth in deposits, a broader and expanding loan portfolio, and greater efficiency by Latin American banks.

Brazilian banks have led the surge, occupying the top five spots on The Banker�s list of the best Latin American banks. They�ve done this mainly by focusing on the growth of the middle class. The middle class in Latin America has grown to 51% of the population in the major economies in 2011, from just 41% in 2001. That growth in the middle class has pushed per capita income to $11,900 from $7,600 a decade ago.

It has also increased the demand for consumer loans: be they mortgages, car loans, or small business or industry loans.

Itau Unibanco Holdings SA ITUB , has focused on reducing costs and streamlining efficiency since the two banks merged in November 2008 to form Brazil�s largest bank. �But I can guarantee that we will not reduce our investment plans as part of that effort,� CEO Roberto Setubal said. Itau Unibanco has been rapidly expanding both within Brazil and across Latin America, capitalizing on success in consumer banking.

Regional growth

Itau Unibanco is just one of several banks with eyes on the rest of Latin America. �The flow of investments among the region�s various countries is increasing strongly,� said Andre Esteves, BancoBTG Pactual�s chief executive, in a statement. �Capita! l market s are developing at a fast pace in Colombia and Peru. Even the more mature markets, such as Brazil and Chile, continue to have high growth rates. We are very optimistic about the perspectives for Latin America.�

With money from Abu Dhabi, Singapore and China, BTG Pactual has grown to become one of Brazil�s top-10 banks. It recently expanded into Chile, Colombia and Peru and has reportedly been meeting with investment banks to launch its own shares over the next few months.

Recent analyst reports have suggested the major banks in Latin America, such as Itau Unibanco and BancoBradesco BBD , are losing market share to smaller, regional banks. We don�t see this as a reason not to invest in the larger banks. While they may end up losing share nationally, we believe the bigger banks will gain from their cross-border initiatives and from the rapid overall growth of banking in Latin America. Even if they did lose market share, that doesn�t mean their growth will slow. Like elsewhere, being bigger is a plus in Latin America�s banking industry.

There has been some backlash in Latin America as a result of the global financial crisis. Latin American countries have been more apt to approve regulations to protect consumers against fraud since 2008, and these same rules have not just protected consumers, but also shielded the local banking industry from foreign predators.

Even without better regulations, we expect you will start to see more intra-Latin America mergers and fewer acquisitions from developed countries. Already Latin American banks have pushed foreign banks from the top positions, in businesses including retail banking and investment banking. Last year, Itau Unibanco pushed Citigroup C �and Credit Suisse Group CS �CH:CSGN �from their top positions in investment banking.

But retail banking remains the key that most banks are after. In a survey for the Economist Intelligence Unit, most executives (27%) expect the greatest increase in competition in retail banking, compared with 17% in investment banking, 15% in corporate banking and 12% in consumer finance and cards.

The one country in Latin America where foreign banks have held onto their positions, and in some cases increased, is Mexico. Indeed, Spain�s Banco Santander ES:SAN �has amplified its penetration in Mexico, while also actively playing a large role in banking in Argentina, Uruguay, Chile and, to a lesser extent, in Brazil. Citibank, with its control of Banamex, has also benefited from its Mexico operations by penetrating retail banking and issuing more than a million credit cards per year.

Unbanked

And that brings us back to one of the strongest reasons to invest in Latin American banks: reaching the unbanked population. Half of the population in Latin America still does not use banks. In Brazil, 58% still use cash at supermarkets, with just 15% of purchases coming from credit cards and another 15% from debit cards.

A study by GrupoBursatilMexicano shows the potential of Latin American countries in bank loans to the private sector: If Chile is the model with close to 70% of private sector loans as a percentage of GDP, Brazil is still far behind at 50%, and Colombia (30% of! GDP) an d Mexico (less than 20%) are even further behind.

Latin Americans have devised their own ways to bring the unbanked into the mainstream. Even if it�s using a prepaid card for purchases, or having bank branches or ATMs in supermarkets, the growth of these will only pick up as the emerging middle class expands.

In Brazil, as in many South American countries, ATMs are often not operated by banks but by third parties. These kiosks are often much more prominent than the ATMs of banks. The largest of these is TecBan, which is planning to expand its network of Banco24Horas ATMs to 13,000 by the end of 2012, from 11,000 currently. TecBan plans to install ATMs at gas stations, supermarkets, shopping centers, drug stores, and subway, bus and rail stations. The company generates revenue by charging financial institutions a fixed price per transaction.

In summary, we think the banking sector in Latin America is going to benefit long-term from the growth of the middle class, and from greater access to the unbanked population, especially as new technologies gain adoption such as mobile banking and innovations in credit cards.

Top Stocks To Invest In - Has American Capital Agency Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?
One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Top Stocks To Invest In -American Capital Agency (Nasdaq: AGNC  ) fits the bill.
The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

• Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
• Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
• Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
• Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
• Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
• Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at American! Capital Agency.

Factor	What We Want to See	Actual	Pass or Fail?
Growth	5-Year Annual Revenue Growth > 15%	129.4%*	Pass
?	1-Year Revenue Growth > 12%	176.7%	Pass
Margins	Gross Margin > 35%	100%	Pass
?	Net Margin > 15%	90.6%	Pass
Balance Sheet	Debt to Equity < 50%	796.7%	Fail
?	Current Ratio > 1.3	0.06	Fail
Opportunities	Return on Equity > 15%	19.8%	Pass
Valuation	Normalized P/E < 20	9.66	Pass
Dividends	Current Yield > 2%	16.4%	Pass
?	5-Year Dividend Growth > 10%	9.2%*	Fail
?	?	?	?
?	Total Score	?	7 out of 10

Source: S&P Capital IQ. Total score = number of passes. *Three-year growth rates.

Since we looked at American Capital Agency last year, the mortgage REIT has dropped a point. Dividend growth has slowed and recently even reversed course, which could be a sign of things to come for the company.
Investors have gravitated to mortgage REITs for their outsized dividends. With bonds yielding next to nothing, the double-dig! it yield s that American Capital Agency and its peers offer look exceptionally attractive.
But recently, changing trends are threatening those dividends. In its most recent quarter, American Capital Agency reported lower earnings per share due to a big jump in outstanding shares, and more importantly cut its dividend from $1.40 per share to $1.25 for the first quarter of 2012. The company's interest rate spread fell below 2%, prompting further concerns.
The challenges aren't unique to American Capital Agency. Top Stocks To Invest In -Annaly Capital (NYSE: NLY  ) saw similar drops in interest rate spreads, prompting its own dividend cut. Moreover, Annaly and Top Stocks To Invest In -Chimera Investment (NYSE: CIM  ) have started to clamp down on their leverage ratios, which helps make them less sensitive to adverse conditions going forward (but comes at the expense of some profits). Additionally, with new initiatives to help underwater homeowners refinance, prepayment rates could also hurt.
Given its leverage, American Capital Agency is as close to perfection as it's likely going to get. If conditions continue to worsen, though, the company could deteriorate further in the years ahead.
Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.
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