Ongoing economic uncertainty, concerns about recession, inflationary pressure, and tariff pause have made investors switch to exchange-traded funds. The low-risk and highly diversified funds can generate steady income by reducing sector-specific and company-specific risks. SPDR Portfolio S&P 500 High Dividend ETF (NYSEARCA: SPYD | SPYD Price Prediction) mirrors the S&P 500 high dividend index. This index has 80 high-yield stocks which are not only blue-chip companies but also dividend payers. The fund has $6.2 billion in assets and outshines the S&P 500 in returns.
Since its launch in 2015, the fund has generated an annualized return of 9.4%. While the risk of a dividend cut exists, the fund has managed to remain steady in its payouts over the years. SPYD has a net asset value of $40.42 and it is down 6.24% year-to-date. The S&P 500 is down 8.61% year-to-date while the Nasdaq is down 13.26%. Compared to them both, the fund has performed significantly better since the start of the year.
Strong yield
A major reason investors might be interested in SPYD is the high dividend. The fund is a dividend payer with a yield of 4.6%. Its yield is higher than the average dividend yield of the S&P 500 and the yield on treasury bills. By investing in the fund, investors not only enjoy steady passive income but also reduce company-specific risks. The mid-cap fund has generated 7.28% returns in the past 12 months and, 1.63% returns over the last three years. Its last quarterly dividend was $0.5467 paid in December.
Its holdings include:
- Real estate: 23.41%
- Utilities: 18.26%
- Consumer Defensive: 15.16%
- Financial services: 13.81%
It invests in 80 stocks and none of the stocks have a weightage higher than 2% in the fund. The top stocks are Philip Morris International Inc., AT&T Inc., CVS Health Corporation, and AbbVie Inc. These are solid dividend-paying companies with the potential for capital appreciation. The top ten holdings account for 15.27% of the assets.
While there is no requirement to discuss the valuation of the stocks in SPYD, here’s an example of the trailing P/E ratios of the top stocks.
- Philip Morris International Inc.: 25x
- AT&T Inc.: 18x
- CVS Health Corporation: 19x
- Abbvie Inc.: 72.94x
Abbvie isn’t an ideal rock-bottom value but the overall trailing P/E ratio of the fund is 17.03x which helps balance out the high flyers.
About one-fourth of the fund invests in real estate which is well suited as a dividend-paying investment. This is what sets the fund apart from the other ETFs which do not invest in real estate. It invests a very small percentage in information technology which reduces the AI-specific volatility.
The index is rebalanced each quarter and this is when the fund might add new holdings and change the sector exposure.
Own elite names
If you are someone who thinks that the market might not recover anytime soon, you need to park your funds in ETFs that pay steady passive income. When it comes to dividends, SPYD doesn’t disappoint. The fund has a portfolio of consumer defensive and utilities companies that continue to reward shareholders. Besides the top holdings mentioned above, the company also invests in top dividend-paying stocks like AT&T and Verizon Communications. The biggest advantage of investing in SPYD is the portfolio of elite stocks. Since it focuses on the top U.S. blue chip companies, you get to own the best without having to handle the volatility.
Low cost
While this may not be the biggest reason to invest in SPYD, investors do consider the cost of investment before making a decision. The expense ratio of the fund is 0.07% and any expense ratio below 0.25% is considered ideal. A low expense ratio means higher returns for you.
Amid the current market volatility, SPYD offers a high yield and elite names, making it an ideal choice for investors looking for low-risk and steady returns while the market recovers.
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