Dividend investing has never been more popular. And that’s probably why it has never been this misunderstood. Investors flock to stocks for the yield, but they make a very dangerous assumption: that the stock price will go up over time.
Most stocks yield well below what bonds do and carry equity market risk. And in a market focused on the artificial intelligence (AI) trade and not much else, that makes the SPDR Portfolio S&P 500 High Dividend ETF (SPYD) a better research tool for individual stocks than a solid exchange-traded fund (ETF) buy. At least for now.
SPYD was built on a simple concept. It identifies the 80 highest-yielding stocks in the S&P 500 Index ($SPX) and weights them equally. That has the effect of the fund needing to have a bunch of winners, since it cannot ride on the backs of a set of oversized holdings.
That hasn’t happened often in this growth-driven market. The unique mechanics of this fund create a sharp divide between the bull and bear cases for dividend investing in the current environment.
SPYD has kicked into gear lately, as part of the broadening trade away from technology stocks. The chart looks pretty good here. But this is not an ideal ETF to chart, frankly. It’s too diverse.
But with a price-to-earnings (P/E) ratio of 14x, this implies there are some good single-stock opportunities from time to time. This may not be one of those times, until sectors or stocks show more than trading time frame bursts of higher prices.
The bull case for SPYD is centered on its role as a high-income diversifier in a market where valuations for growth stocks have become historically stretched. The fund currently offers a trailing 12-month dividend yield of more than 4%. That’s nearly four times the yield of the broader S&P 500.
Furthermore, SPYD is heavily tilted toward defensive and value-oriented sectors, with real estate, financials, and consumer staples accounting for more than half of assets. In a year where persistent inflation and geopolitical tensions are fueling market dispersion, these sectors often act as safe harbors, providing durable cash flows and lower volatility than the tech-dominated leaders of the past decade.
