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SDY: Continuing To Lag


  • SDY has lagged the S&P 500 and other dividend funds since 2018 began.
  • While SDY's dividend growth has been impressive, it is not enough to make up for a smaller total return.
  • I'm not impressed with SDY's top holdings, and don't believe it is the best make-up for a growing economy.

Main Thesis

The purpose of this article is to articulate why I believe the SPDR Dividend ETF (NYSEARCA:NYSEARCA:SDY) is not an attractive investment option at its current market price. SDY has been moving higher over the past year, but its overall return has lagged both the broader market and other dividend growth funds. Some of the fund's top sectors, such as consumer staples and utilities, are not ideal holdings for a growing economy, which we are currently in. Furthermore, while it has a lot of financial exposure, it lacks some of the big banks (which I currently favor) such as JP Morgan Chase (JPM) and Bank of America (BAC) because of their dividend cuts, even though the stocks are performing very strongly and have greatly increased their dividends in the short-term. Finally, with interest rates moving higher in 2018, SDY's yield simply may not be enough to attract investors in the short-term.


First, a little about SDY. The fund's objective is to match the returns and characteristics of the S&P High Yield Dividend Aristocrats Index. This index screens for companies that have also followed a policy of consistently increasing dividends every year for at least 20 consecutive years. The fund currently sits at $91.35 and has a SEC yield of 2.39%, according to State Street. During my last review of SDY back in January, I recommended investors avoid the fund. Since that time, SDY is down about 4%. Furthermore, the fund has under-performed both the broader S&P 500 and similar dividend ETFs, such as the Dividend Appreciation ETF (NYSEARCA:VIG), since the start of the year. While this has undoubtedly given SDY a more attractive valuation, I believe SDY will continue to lag both the market and other dividend funds, and I will explain why in detail below.

Top Holdings - Lukewarm

This article was written by

Dividend Seeker profile picture
CEF/ETF income and arbitrage strategies, 8%+ portfolio yields

I've been in the Financial Services sector since 2008, which unsurprisingly gives me an invaluable insight in how markets can turn. I was a D1 athlete in college (men's tennis), where I studied Finance. I also have my MBA in Finance.

My readers/followers can trust that I won't pump any investment nor discuss a topic I don't genuinely follow and research. In that spirit, I list my portfolio here for transparency

Broad market: VOO; QQQ; DIA, RSP



Dividends: DGRO; SDY, SCHD

Municipals/Debt Funds: NEA, PML, PDO, BBN


Cash position: 30%

Analyst’s Disclosure: I am/we are long SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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