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

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Designed to provide broad exposure to the Large Cap Value segment of the US equity market, the SPDR S&P Dividend ETF (SDY - Free Report) is 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 $19.76 billion, making it one of the largest ETFs attempting to match the Large Cap Value segment of the US equity market.

Why Large Cap Value

Large cap companies usually have a market capitalization above $10 billion. Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.

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. When you look at long-term performance, value stocks have outperformed growth stocks in nearly all markets. But in strong bull markets, growth stocks are more likely to be winners.

Costs

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

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 2.77%.

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 Financials sector--about 16.80% of the portfolio. Industrials and Consumer Staples round out the top three.

Looking at individual holdings, Exxon Mobil Corporation (XOM - Free Report) accounts for about 2.80% of total assets, followed by At&t Inc. (T - Free Report) and South Jersey Industries Inc. .

The top 10 holdings account for about 20.43% 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 gained about 20.26% so far this year and was up about 31.48% in the last one year (as of 10/22/2021). In the past 52-week period, it has traded between $91.76 and $127.47.

The ETF has a beta of 0.91 and standard deviation of 24.22% 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 $56.44 billion in assets, Vanguard Value ETF has $87.19 billion. IWD has an expense ratio of 0.19% and VTV charges 0.04%.

Bottom-Line

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are 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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