“Offense sells tickets. Defense wins championships.”
— Bear Bryant
We all know that technology giants are dominating market headlines and driving the S&P 500 to dizzying heights. However, while tech giants are responsible for delivering exciting capital appreciation, your portfolio needs another force to provide steady cash flow and defensive stability. Indeed, a great soccer team cannot consist of strikers alone — it must also have defenders.
This is where the SPDR Portfolio S&P 500 High Dividend ETF (SPYD) comes into play, as it can be a suitable complement to your tech stocks.
SPYD is an exchange-traded fund (ETF) that invests in the 80 highest dividend-yielding companies within the S&P 500 Index. Each holding is weighted at roughly 1.25%, which gives the fund a stronger “decentralized” attribute. And since dividend yield is calculated as annual dividend per share divided by stock price per share, yields typically rise when prices fall. This process naturally leads the fund to invest in stocks that may have been oversold by the market. Hence, when sentiment improves and valuations recover, the SPYD is often well positioned to capture the rebound.
Compared to many ETFs that chase super-high dividends, SPYD distinguishes itself by restricting its stock pool strictly to S&P 500 constituents. Companies within the S&P 500 have already undergone rigorous screenings of their market capitalization, liquidity and profitability. This mitigates the risk of mistakenly including small companies with poor fundamentals while pursuing high yields.
The fund has assets under management of around $7.3 billion and an expense ratio of 0.07%. It is currently up 2.65% over the last month, 2.87% over the last six months and 1.58% year to date. Boasting a dividend yield often exceeding 4.4%, SPYD acts as an ideal defensive pick for growth portfolios, offering stability and income as interest rates decline.
The top 10 holdings of SPYD (accounting for approximately 14.30% of its portfolio) include: CVS Health Corporation (NYSE: CVS), 1.60%; APA Corporation (NASDAQ: APA), 1.57%; AbbVie Inc. (NYSE: ABBV), 1.51%; Simon Property Group, Inc. (NYSE: SPG), 1.42%; Best Buy Co., Inc. (NYSE: BBY), 1.40%; Altria Group, Inc. (NYSE: MO), 1.38%; FirstEnergy Corp. (NYSE: FE), 1.38%; Phillips 66 (NYSE: PSX), 1.36%; Evergy, Inc. (NYSE: EVRG), 1.36% and Citizens Financial Group, Inc. (NYSE: CFG), 1.34%.
Chart courtesy of www.stockcharts.com
SPYD has been steadily trending upward. For investors who have already enjoyed significant gains in tech stocks, locking some of those profits into a high-yield, low-valuation asset like SPYD is a prudent rebalancing strategy. This would not be selling your future winners; it would be locking in powerful dividends today, ensuring a reliable cash flow while you search for your next opportunity.
Investors should not rely solely on this overview. It is important to conduct thorough due diligence before adding any stock, fund or ETF to a portfolio.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
