A Dividend Focused ETF Not For Me (At Least Not Now)

I was reviewing the SPDR® Portfolio S&P 500® High Dividend ETF or SPYD for inclusion into my dividend portfolio.

From the State Street website:

The SPDR® Portfolio S&P 500® High Dividend ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P® 500 High Dividend Index (the “Index”)

To dig into that a little bit further, here is the bit about the index itself:

The S&P® 500 High Dividend Index is designed to measure the performance of the top 80 high dividend-yielding companies within the S&P 500® Index, based on dividend yield. To determine dividend yield: (i) an indicated dividend is measured by taking the latest dividend paid (excluding special payments) multiplied by the annual frequency of the payment; and (ii) the indicated dividend is then divided by the company’s share price at the date of rebalancing.

So in essence, the dividend will hold 80 of the highest dividend stocks in the S&P. Sounds good at first glance and the immediately income could help many investors. With a gross expense ratio of 0.07% (very cheap), it also almost has no cost to hold it. It will hold REITs and it’s important to note because many dividend ETFs will not.

From reading other articles on dividend ETFs I had created a few alerts for myself.

I have some interest in this ETF when one of these is met:

  • Dividend yield greater than 4.8%
  • Price near 52 week low
  • Price dropped below its 200 day moving average. I’m writing this in part because that last alert triggered yesterday (May 28th).

The Holdings

Part of the analysis for purchase of an ETF is diving into the holdings. During the initial review of the top 10 holdings was where I got my first pause.


An index just based on one theme can show cracks. I was curious why COTY was the top holding but at the time of the last reindexing the stock was yielding in the 7% range.

COTY stock chart From Seeking Alpha
COTY Dividend news from Seeking Alpha

To give credit where it’s due, the stock has nearly doubled since that low.

Scanning over the other top holdings there are some initial concerns with several of them:

  • Xerox – what’s the opportunity here?
  • Qualcomm – recent monopoly ruling and lawsuits galore
  • General Mills – slow and steady but food preferences are changing

Going down the longer list, there are many real estate and utilities. The whole Utilities sector is overvalued as investors have been grabbing for yield the past few years. This is readily visible looking at the Utilities ETF (XLU) dividend yield over the past decade.

XLU declining dividend yield


SPYD tracks an index that holds the 80 highest yielding companies in the S&P 500. Several of these companies seem to be facing some big structural issues. It is diversified over 80 companies and many of the real estate companies seem like good holdings. All in all, it will provide higher income levels with nearly no cost. I would expect this type of index to lag the market if you are looking to compare against the market.

It’s not the worst dividend ETF I’ve seen in the world (faint praise I know) and I actually may be interested in it if we get that yield higher. That will require a broader market decline as we are still sitting in some thin air with the overall valuation of the equity markets. The index also never claimed to provide any additional quality filters so just be aware this is the highest yielding 80 companies.

With the current 4.4% yield, I think there are greener pastures to either cherry pick a few names off the holding list or to wait for a better entry point.

October 2016 Dividend Income – $209

Dividend Update

Now that October is in the books, here is the income that I received over the month.  I’ve crossed over the $200/mo mark for the first month in a quarter.   I earn the majority of my dividends in the third month of ever quarter.  Occidental is struck through because I have since sold the position though I received the income.  My full article for October can be found here.

Here is my October 2016 dividend income:

Cardinal Health17.96
Cisco Systems31.46
Diageo PLC36.93
JPMorgan Chase14.4
Occidental Petroleum32.62
Realty Income4.04
STAG Industrial5.79