State Street introduces SPDR S&P 500 High Dividend ETF

Oct 26th, 2015 | By | Category: Equities

State Street Global Advisors (SSGA), the asset manager behind the SPDR brand of exchange-traded funds, has launched the SPDR S&P 500 High Dividend ETF (NYSE Arca: SPYD), a fund dedicated to tracking the performance of US-listed firms offering compelling dividend yields.

State Street expands SPDR equity income ETF suite with S&P 500 High Dividend Fund

James Ross, executive vice president and global head of SPDR Exchange Traded Funds.

The methodology behind the S&P 500 High Dividend Index initially establishes the dividend yields for all firms trading on the S&P 500. This is accomplished through recording latest dividend payments, excluding any significant special dividends, and multiplying by the frequency of company dividend payments made in a year. This approximation of each firm’s annual dividend payments is divided by the firm’s current stock price to reveal its dividend yield.

All companies are ranked in descending order according to their reported yields and the top 80 firms are chosen for inclusion and weighted equally within the index. This process is repeated semi-annually, in January and July.

Investing in high dividend stocks is a strategy that has historically provided superior returns when compared to the return of broad equity markets. Several reasons have been put forward to explain this finding. These include the notion that dividend stocks have higher quality earnings than other firms; for dividends to be sustainable they should be based on expected cash flows and not balance sheet earnings which may be susceptible to manipulation. Dividend stocks also tend to weather a market crash better than other stocks, adding a degree of risk protection. Finally, established dividend policies place pressure on management to be exceptionally prudent with shareholder capital.

That being said, dividend paying stocks have underperformed the market in 2015. State Street has attempted to address this by basing the fund’s methodology on dividend yield rather than total dividends paid.

James Ross, executive vice president and global head of SPDR Exchange Traded Funds at State Street Global Advisors, commented: “As dividend paying stocks have generally underperformed broader market exposures this year, investors and advisors continue to assess their options. In providing exposure to a large, diversified portfolio of dividend paying S&P 500 constituents, SPYD helps investors allocate to income-producing stocks that have the potential for attractive price appreciation.”

The fund is currently leaning towards sectors which have historically provided high dividends, such as utility companies and real estate investment trusts (REITs). As of 22 October 2015, the fund was exposed to multi-utilities (14.4%), electric utilities (13.8%), specialised REITs (6.4%), retail REITs (3.9%) and healthcare REITs (3.7%). Firms within the integrated telecommunication services (5.0%) and oil & gas storage & transportation (4.3%) also played a notable role.

The total expense ratio of the fund is 0.12%.

SSGA now offer a range of equity income ETFs, with a combined assets under management of $13.4bn as of 30 September 2015, allowing investors the flexibility to tailor their exposure to this strategy according to their portfolio needs. The other funds within the suite include:

SPDR S&P Dividend ETF (SDY)

SPDR S&P Global Dividend ETF (WDIV)

SPDR S&P International Dividend ETF (DWX)

SPDR S&P International Dividend Currency Hedged ETF (HDWX)

SPDR S&P Emerging Markets Dividend ETF (EDIV)

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