The ETF’s weight to financial services stocks is still high at almost 25% and that exposure is the byproduct of SDY holding insurance providers and real estate investment trusts that were not dividend offenders during the financial crisis. Additionally, SDY could prove sensitive rising interest rates due to its combined weight of 26.4% to the rate-sensitive consumer staples and utilities sectors. [Bond Proxy ETFs get Hit]
“The average dividend yield for stocks in the portfolio is higher than that of stocks in the S&P 500. Stocks with high dividend yields often pay out a large portion of their earnings, leaving less cash available to reinvest in the growth of their businesses. Stocks in the fund are expected to grow earnings by 8.5% compared with 9.9% for the S&P 500. Although the fund held up better than the broad market in 2008, the fund’s maximum drawdown starting in 2007 was about the same as the S&P 500,” according to Morningstar.
Earlier this year, SDY parted ways with Diebold (NYSE: DBD), Energen (NYSE: EGN) and Family Dollar (NYSE: FDO) while welcoming Albemarle (NYSE: ALB), CDK Global (NYSE: CDK), Essex Property (NYSE: ESS) Expeditors International (NasdaqGS: EXPD), Mercury General (NYSE: MCY), Realty Income (NYSE: O) and Ross Stores (NasdaqGS: ROST). [Changes for Some Dividend ETFs]
“However, high-yielding stocks can be risky. While the highest-yielding 30% of the market has outperformed since 1926, these stocks have also had a greater volatility than the broader market. Stocks with the highest dividend yields are often distressed and may be offering an attractive yield as compensation for risk,” according to Morningstar.
SPDR S&P Dividend ETF
