ETF Spotlight on SPDR S&P Dividend ETF (SDY), part of an ongoing series.
Assets: $8.7 billion.
Objective: The SPDR S&P Dividend ETF tries to reflect the performance of the S&P High Yield Dividend Aristocrats Index, which holds the 60-highest dividend yielding components of the S&P Composite 1500 Index that have raised dividends every year over 25 consecutive years.
Holdings: Top holdings include: Pitney Bowes (PBI) 4.0%, AT&T (T) 3.4%, Cincinnati Financial (CINF) 3.2%, Hcp (HCP) 2.9% and Leggett & Platt (LEG) 2.8%.
What You Should Know:
- State Street Global Advisors sponsors the fund.
- SDY has an expense ratio of 0.35%.
- The fund has 62 holdings.
- The ETF has a dividend yield around 3%; in comparison, the average yield for the S&P 500 is roughly 2%.
- Sector allocations include: financials 19.4%, consumer staples 18.5%, industrials 14.5%, consumer discretionary 11.4%, materials 11.0%, utilities 10.6%, health care 6.8%, telecom services 3.4%, info tech 3.1% and energy 1.4%.
- SDY is up 6.5% over the last month, 8.1% higher over the past 3 months and up 9.3% over the past year.
- The dividend strategy includes a mix of quality and distressed companies, says Samuel Lee, Morningstar analyst. “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,” Lee said. “However, the quality tilt wins out most of the time.”
- “Investors buying a dividend index are betting that the market will pay too much for growth stocks,” Lee added. “It’s a bet that has paid off handsomely throughout history, in the U.S. and abroad.”
The Latest News:
- S&P Capital IQ analysts pointed out that the 2.1% total return in the S&P 500 during 2011 was helped by dividends. Without that yield, the index would have been flat.
- S&P analysts also noted that dividend paying stocks outperformed stocks without dividends.
- Dividend payers rose 1.4% on average in 2011, compared to the 7.6% average loss for S&P 500 components that didn’t pay dividends.
- Around 75% of S&P 500 companies are expected to raise dividends in 2012, USA Today reports.
SPDR S&P Dividend ETF
For past stories in this series, visit our ETF Spotlight category.
Max Chen contributed to this article.