By Dividend Seeker

  • US equity markets have done extremely well so far this year, making me cautious on 2020 performance.
  • We have seen positive political news and trade developments around the world, but sentiment appears to be driving stocks higher, not earnings.
  • While corporate earnings are generally strong, P/E multiples are rising much faster than earnings. Considering how late in the economic cycle we are, this is telling me to be defensive.

Main Thesis

The purpose of this article is to evaluate the SPDR Portfolio S&P 500 High Dividend ETF (SPYD) as an investment option at its current market price. I have recommended, and owned, SPYD for the long term, and I continue to see merit in adding to positions today. As interest rates have declined this year, SPYD’s income stream looks attractive. This is especially true because the fund has seen dividend growth on a year over year basis. Furthermore, while equity markets have been performing very well, SPYD has kept pace, despite being a more conservative make-up.

Looking ahead, I continue to like its valuation, which trades markedly below the S&P 500. With a rising market driven by central bank liquidity and trade sentiment, rather than corporate profits, the valuation of the broader market concerns me. This leads me to add to funds that trade at discounts to the market, such as SPYD.

Background

First, a little about SPYD. The fund is managed by State Street Global Advisors, and its stated objective is to “provide investment results that, before fees and expenses, correspond to the total return performance of the S&P 500 High Dividend Index”. SPYD currently trades at $38.83/share and yields 4.36% annually. I covered the fund about four months ago, when I alerted readers to a widening gap between “value” and “growth” valuations, and to use SPYD as a way to capitalize on it. In hindsight, this was a good call, as SPYD markedly out-performed in the weeks that followed. While the performance gap has narrowed more recently, SPYD still leads the S&P 500 in the interim, as shown below:

SPYD Chart

Source: Seeking Alpha

Heading in to 2020, I am examining all my core positions to see if I should make any changes due to macro developments. With equities sitting at all-time highs, I don’t see a lot of potential for short-term gains right now.