One of the larger dividend ETFs is a State Street fund that focuses on companies that have a consistent dividend track record. And like most dividend ETFs, it’s yielding more than the 2% currently on offer from 10-year Treasury notes.
SPDR S&P Dividend ETF (NYSEArca: SDY) tries to reflect the performance of the S&P High Yield Dividend Aristocrats Index, which includes the highest dividend yielding S&P Composite 1500 Index components that have consistently increased dividends every year over the last 20 consecutive years.
SDY has a 3% dividend yield and a 0.35% expense ratio. [Dividend ETFs: Examining Yields, Returns and Risk]
Currently, the fund holds a 86 highest-yielding stocks of the S&P 1500 that raised dividends that have raised dividends over the last 20 years, and the largest holding is just 2.9% of the over portfolio.
The ETF’s market-capitalization breakdown includes giant 19.4%, large 40.2%, medium 34.4% and small 6.0%.
Sector allocations include consumer staples 19.0%, industrials 16.2%, financials 16.0%, materials 10.0%, health care 9.6%, consumer discretionary 9.5%, utilities 9.0%, information technology 3.7%, energy 3.5% and telecom services 3.4%.
“The result is a curious mix of quality and distress,” according to Morningstar Samuel Lee. “Quality because companies that have grown their dividends like clockwork tend to have solid earnings and sustainable business models; distress because the emphasis on the highest yielders means firms that have hit a rough patch right before the annual rebalance get big overweightings.”
SPDR S&P Dividend ETF
For more information on dividends, visit our dividend ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.