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
SCIF 41.084%
SCIN 39.995%
SMIN 36.861%
EPOL 31.132%
EMQQ 30.342%
INXX 30.208%
KWEB 29.197%
PLND 29.060%
BRF 26.998%
EWZS 26.983%
ARKK 25.536%
Sector Symbol Performance
Technology FDN 24.667%
Healthcare BBH 22.922%
Real Estate FRI 21.023%
Basic Materials GDX 20.411%
Consumer Cyclical FXD 17.649%
Industrial EXI 14.053%
Financial BSV 13.739%
Energy DBE 13.456%
Utilities FIW 12.865%
Consumer Noncyclical FXG 10.710%
Telecommunications IXP 8.496%
Financial Services FREL 2.303%

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