Additionally, dividend-paying stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return. Over the past 40 years, companies that boost payouts have proven to be less volatile than their counterparts that cut, suspended or did not initiate or raise dividends.

Related: Make a Quality Query With This Smart Beta ETF

SDY holds almost 110 stocks, about 30% of which hail from the consumer staples and financial services sectors. Industrial and utilities names combine for 26% of the ETF’s weight. Investors are waiting for the benefits of SDY’s financial sector exposure to become apparent as the ETF is up 3% this year despite two rate hikes by the Federal Reserve.

“The benefit of holding financial companies during a rising rate environment is because as the economy improves and rates go up, banks and other financial firms increase the rate at which they charge for loans and other products at a faster pace than what they pay out for deposits. This will increase their interest rate spread and overall profitability, all other things being equal,” according to Seeking Alpha.

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