Key insights
- The article suggests SPDR Portfolio S&P 500 High Dividend ETF (SPYD) as an alternative to the S&P 500 for dividend investors. SPYD offers a higher yield (4%) and reduced exposure to technology by focusing on the 80 highest-yielding stocks in the S&P 500, with increased allocation to defensive sectors. This may be attractive for investors concerned about a potential tech bubble, but the equal weighting scheme may cause it to diverge from the S&P 500.
It is a hard time to be a dividend investor because, even after recent price weakness, the S&P 500 index (^GSPC +2.91%) is still offering a tiny 1.1% dividend yield. You can do much better than that if you buy individual stocks, but that exposes you to idiosyncratic risk and requires you to do a lot of legwork. SPDR Portfolio S&P 500 High Dividend ETF (SPYD +0.91%) could be the simple exchange-traded fund (ETF) solution you are looking for.
One of the big benefits of the S&P 500 index is that it is composed of large, economically important businesses that have been vetted by a committee of human beings. Another key benefit is that the index is specifically designed to be diversified, with roughly 500 stocks and exposure to the most important market sectors. The index is market-cap-weighted, so the largest stocks have the greatest impact on performance, just like the broader economy operates. If you are looking for diversified exposure to U.S. stocks, it is a simple and elegant solution.
That said, it wasn't designed with dividend investors in mind. This is where SPDR Portfolio S&P 500 High Dividend ETF comes in. It takes the 500 or so stocks in the S&P 500 and sorts them by dividend yield. The 80 stocks with the highest yields are included in the ETF. The stocks are equally weighted, so each stock has the same impact on overall performance. The ETF's dividend yield is a very attractive 4%.
What's particularly interesting about SPDR Portfolio S&P 500 High Dividend ETF today is that its dividend bias materially changes the portfolio. Where technology makes up roughly a third of the S&P 500 index, it accounts for just 2.4% of SPDR Portfolio S&P 500 High Dividend ETF's assets. The ETF is concentrated in more defensive areas like real estate, consumer staples, and utilities.
With a higher yield and less exposure to technology, SPDR Portfolio S&P 500 High Dividend ETF could be a no-brainer buy for investors worried about an AI bubble. And since the ETF trades for well below $100 per share, you can pick up a fairly sizable position even if you don't have tens of thousands of dollars to invest.