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Should SPDR S&P Dividend ETF (SDY) Be on Your Investing Radar?

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If you're interested in broad exposure to the Large Cap Value segment of the US equity market, look no further than the SPDR S&P Dividend ETF (SDY - Free Report) , a passively managed exchange traded fund launched on 11/08/2005.

The fund is sponsored by State Street Global Advisors. It has amassed assets over $19.87 billion, making it one of the larger ETFs attempting to match the Large Cap Value segment of the US equity market.

Why Large Cap Value

Companies that find themselves in the large cap category typically have a market capitalization above $10 billion. Overall, they are usually a stable option, with less risk and more sure-fire cash flows than mid and small cap companies.

While value stocks have lower than average price-to-earnings and price-to-book ratios, they also have lower than average sales and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. They are however likely to underperform growth stocks in strong bull markets.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.35%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 2.78%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Consumer Staples sector--about 16.40% of the portfolio. Industrials and Financials round out the top three.

Looking at individual holdings, At&t Inc. (T - Free Report) accounts for about 3.03% of total assets, followed by Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) .

The top 10 holdings account for about 20% of total assets under management.

Performance and Risk

SDY seeks to match the performance of the S&P High Yield Dividend Aristocrats Index before fees and expenses. The S&P High Yield Dividend Aristocrats Index measures the performance of the highest dividend yielding S&P Composite 1500 Index constituents that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 consecutive years.

The ETF has lost about -5.60% so far this year and it's up approximately 9.63% in the last one year (as of 02/25/2022). In the past 52-week period, it has traded between $110.80 and $130.75.

The ETF has a beta of 0.90 and standard deviation of 23.99% for the trailing three-year period, making it a medium risk choice in the space. With about 114 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Dividend ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, SDY is a good option for those seeking exposure to the Style Box - Large Cap Value area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 1000 Value ETF (IWD - Free Report) and the Vanguard Value ETF (VTV - Free Report) track a similar index. While iShares Russell 1000 Value ETF has $55.21 billion in assets, Vanguard Value ETF has $90.69 billion. IWD has an expense ratio of 0.19% and VTV charges 0.04%.

Bottom-Line

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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