3 months ago • 2 mins
State Street just launched a new dividend ETF – it’s called the SPDR Portfolio S&P Sector Neutral Dividend ETF (ticker: SPDG) – and there’s a heck of a lot to like about it. For one, it’s cheap as chips, as they say, with an expense ratio of just 0.05%. But it’s also got two other big things going for it.
All holdings in the ETF are required to demonstrate their ability to grow or maintain their dividends over the past seven years. Take a look at the chart, it shows the fund’s top ten positions. And it’s not your classic gaggle of high-yielding stocks. That’s key, for me. Let’s look at Broadcom, the top holding. Now, at just a 2.1% dividend yield, you wouldn’t expect this firm to be the biggest holding of a dividend ETF. But the chipmaker has grown its dividend by an annual rate of more than 30% over the past ten years. Now, imagine it does the same for the next ten years. Broadcom currently pays out about $18 per share and, at 30% growth, that’d be $248 in ten years. If you were drawing that kind of payment, it’d be a whopping 30% yield on the $871 price tag today for Broadcom stock.
Keep in mind that Broadcom currently shells out roughly 50% of its profit in dividends, so it’ll need to grow profit at a healthy clip to have room to grow dividends at 30%. However, even at half that rate – 15% – the yield on today’s share price ten years out would be a very healthy 8%.
And that’s how I think about dividends: it’s not about the yield you get today, but what you might get in the future. And today’s big payers don’t stand a chance of growing dividends at that pace.
The second thing I like about this fund is that it’s constructed to match the S&P 500’s sector split. So it has 27% in tech, 13% in healthcare, and so on. That’s different than other classic dividend funds, which tend to be concentrated in high-paying industries like financials, utilities, or commodities. For me, this is a much better risk profile and, therefore, a much better investment.
Overall, then, I love the diversified nature of this dividend fund, and I love the potential growth that it could offer, even though the fund only pays around 3% yield today.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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