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Summary SDY offers a dividend yield of 2.44% which is high for most ETFs but not so impressive for a dividend ETF. The individual holdings offer some dividend champions, but there are some allocations I could do without. The sector allocations aren’t bad, but there are a few changes I’d like to see in that area. The SPDR Dividend ETF (NYSEARCA: SDY ) is an interesting dividend ETF. I’ve been looking at dividend ETFs lately to decide which ones are designed the best. Expense Ratio The expense ratio is .35%. In my opinion, that is not very good. I’m very frugal on expense ratios and would love to see this under .20%. Holdings Investors should always look to the holdings as part of the process in making the decisions. The allocations here are fairly interesting. I see holdings that I love and holdings that I don’t. Realty Income Corporation (NYSE: O ) has an incredible track record that should put it on the radar for any income investor. To be fair, perhaps it should be on the radar for all investors since the total returns have been so solid. When I covered Realty Income Corporation before, I opted to explain how the high valuation of the company was creating an inherent advantage in being able to fund acquisitions through issuing new equity. It is a complex situation, but Realty Income Corporation has a competitive advantage through raising the dividend 81 times. That isn’t a typo; this monthly dividend champion has an incredible track record. On the other hand, this is also an equity REIT, so it could create some tax complications for investors that want to hold their dividend ETFs in taxable accounts and just live off the dividend yield. The same problem with the REIT status is present for National Retail Properties (NYSE: NNN ). If you don’t mind having the equity REITs in your dividend ETF, this isn’t a problem. The REITs offer some great diversification to the traditional corporate allocations and they carry nice dividend yields. Just do your own research on how the tax situation will impact you as an investor. On the other hand, I’m not so bullish on seeing a heavy weight for AT&T (NYSE: T ) because I’m concerned by the level of competition in the sector. I expect that the problems will be resolved eventually, but there could be some substantial damage to earnings over the next couple of years. Sector Allocations The next chart breaks down the sector allocations across the entire ETF: I’m not huge on seeing an enormous weight given to financials. At 25%, this is getting to be a pretty huge allocation and it will have a significant impact on the performance of the portfolio. I’d rather see this be a little lower so the other allocations could be higher. The real challenge for me in assessing their allocation to the sector is looking at which companies are producing the allocation. Equity REITs are classified as financials and I’m not complaining about those allocations. The problem for me is that as we get outside the top 10, several of the financial allocations are to banks or insurance companies. I don’t mind having some money allocated there, but I’m not so sure I would want 25% of the portfolio to go there. Consumer Staples and Utilities On the other hand, we have consumer staples as the second allocation and it comes in with nearly 15% of the portfolio which is nice for maintaining dividends when the economy is staggering. The utilities are running almost 12%, which is better than average for what I find in ETFs, but I’d still like to see the allocation be even higher. The combined weighting of 27% is pretty good, but I’d still like to see it being higher. Energy I wouldn’t mind seeing the energy allocations being a bit higher. Oil has been punished pretty hard, but I still like the huge dividend champions like Exxon Mobil (NYSE: XOM ). XOM is representing 1.55% of the portfolio with another 1.9% in Chevron (NYSE: CVX ). Those are two of the companies I would want for the energy allocation, but I’d like to see that part of the portfolio running closer to a range of 7% to 12% rather than 3.45%. Conclusion This is an interesting dividend ETF. It has some great positive features but there are also some significant weaknesses in my opinion. The allocation to those equity REITs is great as long as there are no tax concerns for the investor. If that isn’t a problem, then the allocations for the ETF are pretty solid. I’d still like to see lower weights towards banks with higher weights towards energy and the combined allocation to utilities and consumer staples. Scalper1 News
Scalper1 News