Some exchange traded funds that offer dividend payouts are not always an obvious choice for yield-seeking investors.
In a research note, Todd Rosenbluth for S&P Capital IQ’s Equity Strategy Group recently highlighted Technology Select Sector SPDR (NYSEArca: XLK), an established and stable technology sector ETF. [S&P’s Best Dividend ETF Picks]
The fund holds both information technology and telecom services.The ETF has a low 0.2% expense ratio and recently generated a 12-month yield of 1.6%. More importantly, S&P believes XLK’s current holdings are undervalued and show low risk. [Dissecting Two Large Dividend ETFs]
“This ETF earns a top ranking from S&P Capital IQ for its low costs and for owning undervalued tech and telecom stocks,” Rosenbluth wrote in the note.
Apple (NasdaqGS: AAPL) is the fund’s largest holding at around 15%. S&P analyst Scot Kessler believes the company’s “global growth story is strong across many geographics and offerings. The stock is also considered undervalued based on S&P fair value.” [Dividend ETFs: Searching Overseas for Yield]
IBM (NYSE: IBM) is XLK’s second largest holding at 8%. “Emerging markets and demand for high-margin software and services should remain robust for IBM,” S&P analyst Dylan Cathers said.