Investors have taken a keen interest in SPDR S&P Dividend ETF (SDY) as a way to get exposure to steady companies that have a long history of raising dividends.
For example, SDY is trending #1 this week at ETF research website XTF.com.
“SDY’s tracking index has stringent rules,” David Mazza, head of ETF investment strategy, Americas, for State Street Global Advisors, said in an interview. “Companies have to raise dividends every year for 20 straight years. This reduces risk. SDY is a high-quality dividend play with high cash generation and a smoother ride. The ETF weights stocks by dividend yield.” [Quality Dividend ETFs Help Mitigate Risk]
Specifically, the ETF tries to reflect the performance of the S&P High Yield Dividend Aristocrats Index, which includes the highest dividend yielding stocks from the S&P Composite 1500 Index that have increased dividends every year for the last two decades. [Investors Play Defense with Dividend ETFs]
“A rarefied group–there are only 80-something of them out of 1,500 names. Many of them are boring, quality names,” according to Morningstar analyst Samuel Lee. “If a firm has grown its dividend like clockwork for 20 years, chances are it has solid earnings and a sustainable business model. It also signals a strong commitment to intelligent capital allocation. Management is less likely to engage in reckless capital spending if its goal is to protect and grow the dividend.”
The fund is comprised of 86 holdings, comes with a 0.35% expense ratio and has a 2.78% dividend yield.
SDY’s market capitalization breakdown includes giant-caps 19.5%, large-caps 38.7%, mid-caps 39.1% and small-caps 2.7%.
Top holdings include Pitney Bowes 3.1%, AT&T 2.8%, Abbvie 2.8%, HCP 2.3% and Consolidated Edison 2.2%.
Sector allocations include consumer staples 19.2%, financials 16.0%, industrials 16.0%, health care 9.8%, materials 9.8%, consumer discretionary 9.6%, utilities 9.1%, information technology 3.7%, energy 3.5% and telecom services 3.4%.
SDY has been outperforming the broader markets so far this year, gaining 15.8% year-to-date, compared to the 12.4% rise in the S&P 500. Over the past five years, SDY has increased 9.5%, whereas the S&P 500 rose 6.0%.
For more information on dividends, visit our dividend ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.