The SPDR Portfolio S&P 500 High Dividend Index ETF (SPYD) is designed to track the performance of the top 80 high dividend-yielding companies within the S&P 500 index. This ETF focused on yield began trading in October 2015. After just five years, the product has $2.3 billion in assets under management. It carries an ultra-low 0.07% management expense annually, and is designed with nearly equal weightings of 80 stocks. The holdings are rebalanced twice a year in January and July.
Perhaps the best-in-class hybrid of blue-chips with higher than normal stock market cash yields, with rates and risks similar to the A-rated corporate bond market, is the Vanguard High Dividend Yield ETF (VYM). The biggest difference between the leading Vanguard ETF and SPYD is the latter’s holding of lower quality companies, with even higher yields. The average market capitalization of the 80 companies is about $37 billion. The SPDR ETF is honestly akin to a high-yield corporate bond fund with underlying credit ratings between A and B, crossed with equity ownership characteristics that gain in value during stronger economic periods. As a result of the coronavirus pandemic recession, the SPDR S&P 500 High Dividend ETF suffered sizable losses earlier in the year, greater than the overall S&P 500 index. However, it has recovered robustly since the summertime, beating other indexes as investors look forward to a strengthening economy in 6-12 months.
My thinking is SPYD will remain an outperformer, assuming a better economy by mid-2021. If you want to lock-in a high 4.6% yield now, with cash payouts that will surely rise as the economy improves, the SPDR S&P 500 High Dividend ETF is worth consideration. Unlike a bond investment that has a price trading closer to par and static dividends over time, a growing economy year-in and year-out should allow for appreciating stock quotes (capital gains) alongside the potential for rising dividend checks.
Below is a breakdown of the industries and sectors owned with the current 80 stock list. Financials, real estate, utilities and energy equities provide the vast majority of weighting today.
A chart of trading activity for the SPYD ETF over the last 12 months highlights the big dip and recovery in price during 2020. Some of my favorite momentum indicators are also drawn. The Accumulation/Distribution Line, Negative Volume Index and On Balance Volume indicator are all rising in a healthy fashion for a general market ETF the last 2-3 months. Yet, I would not say any of the technical indicators on this chart are standout winners vs. other index ETF products. And, two of the indicators are lower than a year ago, mimicking the 15% price decline.
Top 10 Holdings
One characteristic I like in the SPYD product is it attempts to equally weight the 80 stocks included from the benchmark index. Below is a chart of the Top 10 holdings as of October 31st. Basically, the ten performed best for price gains vs. the group, between the July reweighting and the end of October. The Top 10 reported less than a month ago included Invesco (IVZ), Public Storage (PSA), Regions Financial (RF), Comerica(CMA), International Paper (IP), Fifth Third Bancorp (FITB), Leggett & Platt (LEG), ViacomCBS (VIAC), HanesBrands (HBI) and Broadcom (AVGO).
Below are individual charts of the Top 10 holdings, using the same criteria and setup as the overall SPYD ETF graph. Remember, any Top 10 list of weightings for this trust product is a short-term measure of positive performance (usually gains) against the other 70 picks.
Peer ETF Comparisons
The closest peer and competitor ETFs with similar high-yield designs are the Global X SuperDividend (DIV), Oppenheimer/Invesco S&P Ultra Dividend Revenue (RDIV), Invesco S&P 500 High Dividend Low Volatility (SPHD), First Trust Dow Jones Global Select Dividend Index (FGD), and Invesco High Yield Equity Dividend Achievers ETF (PEY). The SPDR SPYD is in second place for assets under management from this group (behind a similar Invesco creation), likely to become the largest sometime next year, as investor interest continues to grow faster than the industry.
Perhaps the most important reason assets are growing faster than the rest is its ultra-low management expense of 0.07% annually. I have drawn below the less than ideal expense ratios of the other five competing products.
The Global X SuperDividend ETF is the junk bond offering of the group with a much higher yield, but at greater risk to capital if a double-dip recession is approaching. I have drawn 1-year and 5-year comparison charts of their yield histories.
Below are total return charts, including dividends received, for the peer group over the last 1-year and 5-year periods. SPYD has been performed slightly weaker than others over the last 12 months, but slightly better than average over 60 months.
Total Returns vs. Other Asset Classes
We can now review how the SPDR S&P 500 High Dividend Yield ETF has performed against other asset classes and index groupings. I am comparing SPYD to the SPDR S&P 500 Index (SPY), iShares 20+ Year Treasury Bonds (TLT), SPDR Bloomberg Barclays High Yield Bonds (JNK), Financial Select Sector SPDR (XLF), Vanguard Real Estate (VNQ), Energy Select Sector SPDR (XLE), Utilities Select Sector SPDR (XLU), iShares Russell 2000 Index (IWM), and Invesco Nasdaq 100 (QQQ) ETF products.
The SPDR SPYD’s dividend yield has been the clear advantage of ownership vs. other index creations. You can review the high cash distribution rate below on 1-year and 5-year charts.
Over the last three months, SPDR S&P 500 High Dividend has been a solid winner for investors, as recovery hopes for the U.S. economy gain popularity. Believe it or not, the highest-yielding 80 equities have widely bested the limited gains in the overall S&P 500 index since late August. The 1-year graph highlights a clear underperformance span during recession. Also notice on the 5-year chart, SPYD was an above-average gainer before the 2020 recession. For 2021, its performance should again follow trends in the overall economy. If the economy proves resilient, SPYD could very well continue to lead the general market, as investors search for yield, while operating profitability rebounds strongly for the average American large-cap business.
If you are looking for a single trade decision to buy a diversified “economic recovery” play for your portfolio, the SPDR Portfolio S&P 500 High Dividend deserves your research time. If President Biden can construct a large bipartisan stimulus plan in January, and/or the Federal Reserve keeps plowing money into the banking system, a much better economy by late 2021 could become reality.
A herd immunity situation and the rollout of vaccines early next year will help confidence, as the coronavirus spread problem will likely peak by February. Follow me on this. At the current rate of positive test results approaching 200,000 a day, and using a factor of 5-10x this number for actual infections (which the CDC and the medical community have modeled), between 1 and 2 million Americans a day are being infected in late November. Again, if nearly 13 million positive tests have been confirmed so far, and we multiply by 5-10x, between 65 and 130 million citizens have already been infected. Conclusion: In another 30-60 days, I am forecasting a minimum of 95 million, to as many as 190 million (60% of the nation’s population) will have been exposed and/or or sickened by the COVID-19 virus into late January. From my mainstream scientific journal readings, herd immunity will be reached somewhere between 40-60% of population infection. When we contemplate the addition of large-scale vaccinations starting in four weeks, I am thinking the coronavirus will be licked as a health emergency by March-April. I am modeling infection numbers will begin to decline rapidly in February.
If you are optimistic by nature, a final stimulus plan by Uncle Sam and the end of the coronavirus scourge could lay the foundation for a formidable economic rebound by next summer. Under this scenario, SPDR SPYD should continue to zigzag higher. Of course, hiccups along the way, and a cautious period into January should not be a shock for investors.
Buying on minor weakness during December may be the smartest battle plan of all. It’s entirely possible a rough 5% forward yield next year, and a 10-15% capital gain will combine for a +15% to +20% total return during 2021 from the SPDR S&P 500 High Dividend ETF.
On the other hand, if the virus mutates into something different (that vaccinations fail to slow, with society prone to reinfection), the pandemic could linger through the summer. What if Congress and the new President fail to find common ground to prop up the economy? What if another black swan event hits the economy like a major war, or a steep drop in the U.S. Dollar’s value? Plenty of variables could spell trouble for the economy and slow the upside potential of an investment in the SPDR S&P 500 High Dividend ETF. Life is full of choices and gambles, luck and destiny.
Thanks for reading. This article should be a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.
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Disclosure: I am/we are short SPY, QQQ, XLF. 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.
Additional disclosure: I may initiate a long position in SPYD over the next 72 hours.
This writing is for informational purposes only. All opinions expressed herein are not investment recommendations, and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity and is not a registered investment advisor. The author recommends investors consult a qualified investment advisor before making any trade. This article is not an investment research report, but an opinion written at a point in time. The author’s opinions expressed herein address only a small cross-section of data related to an investment in securities mentioned. Any analysis presented is based on incomplete information, and is limited in scope and accuracy. The information and data in this article are obtained from sources believed to be reliable, but their accuracy and completeness are not guaranteed. Any and all opinions, estimates, and conclusions are based on the author’s best judgment at the time of publication, and are subject to change without notice. Past performance is no guarantee of future returns.