ETF Talk: SPYD — Add a Safety Valve to Your Portfolio

“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.

Exclusive Three Defense Investments with Potential to Outperform

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.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.