Investors looking for diversification, dividends, and steady growth should consider the SPDR S&P Dividend ETF (SDY). This fund has outperformed the S&P 500 (SPY) over the past five years. In addition to outperforming SPY, the SDY fund yields 3% as opposed to SPY's 2%. SDY is designed to track the performance of the S&P High-Yield Dividend Aristocrat Index.
To get an idea of what companies comprise this fund, we'll take a look at the top 10 holdings:
% of Fund
Pitney Bowes (PBI)
Abbvie Inc. (ABBV)
HCP Inc. (HCP)
Consolidated Edison (ED)
Leggett and Platt (LEG)
Kimberly Clark (KMB)
Johnson & Johnson (JNJ)
The fund has a total of 86 holdings spread among a variety of sectors:
SDY has a trailing PE of 15, which is higher than SPY's 14. However, SDY's price-to-book ratio is currently attractive at 2.69. Stocks with price-to-book ratios under 3 are considered attractively valued.
The stocks in the SDY fund are expected to grow annually at 8.65% for the next three years. This is approximately in-line with the market's expected annual growth over the same period.
Over the past five years, SDY had an annualized gain of over 6%, while SPY had a 4% gain.
The fund has a reasonable expense ratio of 0.35%. Interestingly, SPY's expense ratio is even lower at 0.10%.
Keep in mind that the market looks overbought right now, so waiting for a pullback would be wise before starting a position in SDY. The market recently had a great run to start the year, so a little consolidation, or minor correction is likely before the market continues to run higher. Despite this risk, SDY should prove to be a winner for the long-term - looking 5 years or more into the future.
Overall, SDY provides a decent yield for those dividend investors who don't wish to pick individual stocks. Some investors may not have the time or desire to research individual stocks and some may want the extra diversification and simplicity of owning a large basket of companies all under one ticker.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.