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.