Dividend in a Single-Cusip Product

Posted on 04/30/2012

Last year the first generation of "Baby Boomers" turned 65, and with the change in the calendar year, 2012 ushers in the second generation to the purported “golden years.”  According to The new target demographic: Baby Boomers, nearly one-fifth of the US population will be over the age of 65 by 2030.  Without question, this will pose a challenge to the financial industry because in the next twenty years, advisors will have to provide ways for generating income for the retiring “baby boomer” population.  Certainly there will be demand for fixed-income and income oriented products, but there will also be an appetite for equity income, as well.  Lately, we’ve seen this demand pick up with intensity, as investors are buying almost anything with a decent yield.  In the WSJ’s Dividend Stocks Become Heroes”, "the 100 stocks in the Standard & Poor's 500-stock index with the highest dividend yields are up an average of 3.7% before dividend payouts, according to Birinyi Associates.  The 100 lowest-yielding stocks are down an average of 10% (in 2011)"  And with money market and Treasures still yielding virtually nothing, one common theme that we continue to see play out is the request for yield ideas.

One of the best ways for "sticking with dividend-paying" stocks is by investing in stocks that stick with growing their dividends.  This can be accomplished through the SPDR S&P Dividend ETF (SDY).  This ETF offers a single-cusip way to garner exposure to those stocks which are consistently increasing their dividends.  Specifically, the SDY is based around the S&P 500 Dividend Aristocrat Index, which is an index designed to have exposure to companies which have increased their cash distribution for at least 25 consecutive years.  In other words, this index invests in companies with a proven track record of making dividend payments, and increasing those dividend payments over time.  What separates the SDY from the S&P 500 Dividend Aristocrat Index is that the former chooses stocks from a universe of the S&P 1500 not just the S&P 500.  So, for those looking for a one-stop shop for increasing dividend payors, SDY may be the play.  It currently offers an attractive yield of 3.15%.

Included in the image below are some of the top holdings in the SPDR S&P Dividend ETF.  Also shown is the sector breakdown 

SDY Holdings

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Symbol Performance
EMQQ 50.044%
ARKK 49.377%
KWEB 49.266%
ARKW 48.277%
CXSE 46.429%
SCIF 45.082%
PLND 43.848%
PGJ.TR 43.641%
CQQQ 43.181%
PGJ 42.882%
SCIN 42.655%
Sector Symbol Performance
Technology FDN 48.277%
Healthcare BBH 37.154%
Real Estate FRI 36.061%
Basic Materials GDX 34.838%
Energy DBE 28.666%
Financial BSV 27.479%
Consumer Cyclical FXD 25.036%
Industrial EXI 18.192%
Utilities FIW 18.067%
Consumer Noncyclical FXG 17.733%
Telecommunications IXP 13.145%
Financial Services FREL 4.179%

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