Many investors are using dividend ETFs as a way to dip a toe in the stock market with a more conservative strategy and income to boot. News over the weekend from Cyprus is a reminder of the macro risks still lingering in the market.
For instance, the SPDR S&P Dividend ETF (NYSEArca: SDY) has generated attractive risk-adjusted returns, writes Jordan Wathen for The Motley Fool. The ETF is beating the S&P 500 by almost 3% so far this year. Additionally, SDY comes with a decent 3.0% dividend yield. [An ETF that Tracks Consistent Dividend Payers]
The ETF tracks the popular Dividend Aristocrats Index and is comprised of about 86 companies that generated consistent profits, earnings quality and dividend payments. Currently, the ETF is trading at a relative premium to the S&P 500, with a forward earnings multiple of 15.59 compared to the 13.77 of the SPDR S&P 500 ETF (NYSEArca: SPY). [Buyback, Dividend ETFs Boosted as Companies Return Record Cash]
Over the past five years, SDY has cranked out 47% total returns compared to the S&P 500 Index. Additionally, the ETF has generated 50% more dividends than the S&P 500 each year.
If more bond investors swap into equities, most will likely prefer high-yield dividend options, like the Dividend Achievers Index. Moreover, the Dividend Achiever components, with their consistent dividend track record, would provide a backstop for any potential dips in the market.
For more information on dividend funds, visit our dividend ETFs category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own SPY.