FDVV - SDY: Flawed Holding Strategy Resulting In Underperformance

2024-06-02 09:10:12 ET

Summary

• SDY is a dividend-based ETF that provides exposure to some of the best dividend paying companies in the world. However, this strategy of stock selection is flawed.
• The ETF focuses on companies that have paid at least 20 years of consecutive dividends. However, the focus on past performance ignores future growth potential.
• While SDY has a reasonable expense ratio and a solid dividend growth rate, there may be better alternatives for higher total return and dividend income growth.
• SCHD and FDVV are both better peer dividend funds that offer either a higher dividend growth potential or higher total return through a better selection of holdings.
• The dividend yield is underwhelming and requires a long term commitment to achieve a higher level of dividend income.

Overview

We are living in one of the best times to be an investor. There is an abundance of ETFs that follow whatever strategy you want. When it comes to dividend-based ETFs, there are a ton with varying strategies and holdings. Today I wanted to discuss State Street Global Advisors' ETF, SPDR S&P Dividend ETF ( SDY ). SDY gives you instant exposure to some of the best dividend paying companies in the world. However, the ETF has severely underperformed peer dividend ETFs over most time periods. So even though SDY gets the job done, there are some clear vulnerabilities that I want to discuss. I often look for dividend ETFs that can serve as a compliment to my portfolio of individual holdings. Dividend ETFs can be a nice channel for cash when there are no current deals in the market on individual holdings....

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