Dividend stocks are a very popular choice for investors. The combination of dividend income with prospective capital appreciation has long been a staple for many baby boomer and retiree investors. More recently, Gen-Z, which often is preoccupied with the side hustle job or extra revenue source, has started to look more closely at dividend stocks, which mechanically are akin to a side hustle.
Key Points
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Investors seeking dividends from well known companies with more established track records and index membership have a large menu of selections.
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ETFs that track the top dividend stocks from different indexes can be an easier and less risky way to invest in that type of dividend stock sector.
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ETFs that track dividend stocks that are also members of the Dow Jones Average or the S&P 500 is a convenient way to combine both investment criteria of dividends and established companies with dividend histories.
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However, the amount of time it takes to research and monitor individual dividend stocks often exceeds the bandwidth of most people not working in the financial industry. Many people who wish to “hedge their bets” prefer to stick to well established companies that are titans of their industrial sectors, members of a major index, and are “dividend aristocrats”, meaning 25 consecutive years of successive dividend increases, or “dividend kings” for those with a 50 year history.
The alternative is to invest in an Exchange Traded Fund (ETF) that tracks a particular index of dividend stocks. The ETF route is a less expensive and less risky way to access a sector. As the ETF tracks a specified index, the ETF replicates the composition of the index, thus intrinsically mitigating risks through diversification.
State Street Global Advisors is the fourth largest asset manager in the financial world, with $4.7 trillion AUM. It operates a broad menu of ETFs. For those investors seeking a dividend ETF based on an established index, they would be wise to consider two of State Street’s offerings: the SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA) and the SPDR S&P Dividend ETF (NYSE: SDY).
Following the Dow Jones Average or the S&P 1500 Composite Index
The Dow Jones Industrial Average has been a benchmark of US stock market and industrial health since Charles Dow created it in 1896. It is a collection of 30 stocks considered the best composite representation of US industry, and it has seen major names join and leave its roster in accordance with changes in technology, finances, legislation, and culture.
The SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA) is an ETF that tracks the Dow Jones Average’s 30 stocks, and is proportionally weighted accordingly. Naturally, this includes a reflection of their dividend yields as well. 28 of the Dow Jones 30 stocks pay dividends; Boeing and Intel are the two at the moment. Boeing suspended its dividend in 2020, and Intel just suspended its dividend in Q4 2024.
The S&P 500 Index is a considerably larger collection of stocks that comprise a more comprehensive picture of US industry. It includes companies with younger histories but with more significant industrial sector sway, such as Nvidia, Netflix and Tesla, and also encompasses the Dow Jones stocks in its overall equation. The SPDR S&P Dividend ETF (NYSE: SDY) specifically tracks the highest dividend paying companies in the S&P Composite 1500 Index. Those companies are in the S&P 500, but have dividend increase histories for at least 20 years, with the bulk of them qualifying as dividend aristocrats, if not as dividend kings.
Head to Head Match Up
A head to head comparison of DIA and SDY can give prospective investors a clear A/B perspective from which to see which criteria best fits his or her investment goals.
| Category | DIA | SDY |
| Yield | 1.52% | 2.51% |
| Net Assets | $37.81 billion | $20.25 billion |
| Average Daily Volume | 2.82 million shares | 323,712 shares |
| Expense Ratio | 0.16% | 0.35% |
| Beta | 0.90 | 0.80 |
| Inception Date | 1-13-1998 | 11-08-2005 |
| 1 Year Return | 18.73% | 11.71% |
| 5 year Return | 10.28% | 8.15% |
| 10 year Return | 12.33% | 9.35% |
| Largest Holding | Goldman Sachs (GS) – 8.83% | Verizon (VZ) – 2.96% |
| Largest Sector | Financial Services – 25.01% | Industrials – 17.75% |
Overlapping Holdings
As SDY also holds all of the stocks in DIA, the top 10 largest overlaps are:
| Stock | DIA weighting | SDY weighting |
| Chevron (CVX) | 2.19% | 1.83% |
| Johnson & Johnson (JNJ) | 2.31% | 1.53% |
| IBM (IBM) | 3.62% | 1.43% |
| McDonald’s (MCD) | 4.30% | 1.05% |
| Procter & Gamble (PG) | 2.42% | 1.01% |
| Coca-Cola (KO) | 1.00% | 1.45% |
| Nike (NKE) | 1.15% | 0.89% |
| Verizon (VZ) | 0.61% | 2.96% |
| Caterpillar (CAT) | 4.84% | 0.52% |
| WalMart (WMT) | 1.36% | 0.37% |
Takeaways
Based on the above criteria, prospective investors can see the following points in favor of DIA:
- Greater Net Assets
- Greater market liquidity
- Lower expense ratio
- Overall better ROI average for 1 year, 5 year and 10 year
Points in favor of SDY:
- Higher yield
- Lower Beta
- Lower overweighting in a single particular sector
In the case of comparing DIA and SDY, SDY’s emphasis on dividend stocks over growth stocks surprisingly causes it to lag behind the DIA’s Dow Jones 30. None of the Magnificent 7 stocks that have driven phenomenal growth in the S&P 500 are included in any significant percentage of SDY since none of Magnificent 7 stocks pays a sizable dividend. Ironically, Microsoft, which is a Dow Jones stock, contributes to DIA’s overall superior average returns through its bullish run that has made it a Magnificent 7 stock.
In summary, DIA appears to be the clear winner over SDY if the combination of growth and dividend income is the investor’s objective. On a pure dividend play, SDY’s 2.51% yield is nearly 100 basis points superior to DIA’s 1.52% yield, so income oriented investors seeking income from relatively safe and stable stocks will likely prefer SDY.
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