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SPDR S&P Dividend ETF: A Defensive Dividend Aristocrat Option With Upside

Published Thu, 05 Nov 2020 11:50:08 -0500 on Seeking Alpha

Seeking AlphaETF AnalysisSPDR S&P Dividend ETF: A Defensive Dividend Aristocrat Option With UpsideNov. 5, 2020 11:50 AM ET|| About: SPDR S&P Dividend ETF (SDY)by: Dean YoungDean Young Macro, Tech, GrowthSummarySDY screens companies in the S&P 1500 index for 20 years of dividend growth, creating a more cap-diversified Dividend Aristocrat index.
SDY presents a solid history of safety and performance.
SDY's holdings avoid richly valued tech stocks and allow for buffer during this period of economic uncertainty while providing upside in a recovery.
The SPDR S&P Dividend ETF (SDY) is managed by the same group that manages the most popular S&P 500 ETF, the SPDR S&P 500 ETF Trust (SPY). SDY's composition is inspired by the S&P 500 Dividend Aristocrats which are high dividend paying companies with an extended history of dividend growth and payment for 25 years or more.
SDY's ~100 companies are screened from a larger pool of S&P 1500 companies which provides a broader exposure to the market and allows for more mid-cap companies to make the cut. SDY looks for a 20 year history of dividend growth and payment to ensure sustainable future dividend payments to investors. SDY does come with a somewhat high expense ratio of 0.35% as a fee for this screening and management.
Solid Historical Total Return
SDY's total return (dividends reinvested) in the past several years has consistently met or exceeded the returns of the general market as measured by SPY, except for in the recent economic downturn and subsequent recovery due to the COVID-19 pandemic.
However, the outperformance by SPY in the recent downturn and recovery is nearly completely attributed to its heavy weight in large tech stocks which have grown to incredibly high and potentially unjustifiable valuations. SDY does not hold these stocks because they tend to pay very low or no dividends. When comparing SDY against the ProShares S&P 500 ex-Technology ETF (SPXT), the... Read more