Re-Evaluating SPYD’s Flawed Dividend Yield
Not too long ago, I warned against the siren allure of the SPDR Portfolio S&P 500 High Dividend ETF (NYSEARCA:SPYD). The ETF’s recent semi-annual reconstitution only serves to reaffirm my skepticism. The ETF’s fundamentals have further deteriorated, with a decline in expected dividend yield and a rise in the forward price-earnings ratio. It’s akin to applying fresh paint to a dilapidated building – a futile attempt to mask the underlying decay. Unsurprisingly, I reaffirm my “sell” rating on SPYD and delve into an in-depth comparison with three superior alternatives.
SPYD Strategy and Latest Reconstitution Update
Tracking the S&P 500 High Dividend Index, the SPYD selects the 80 highest-yielding dividend securities in the S&P 500 Index in equal weight. The latest reconstitution saw the addition of several REITs among the nine substitutions, indicating a business-as-usual approach. However, this strategy seems to perpetuate the ETF’s inherent flaw of perpetually holding poor-performing dividend stocks in the S&P 500 Index. The recent additions, trading on average 5.58% below their 200-day moving average prices, starkly contrast with the relatively well-performing stocks they replaced.
The negative performance underscores the missteps in SPYD’s composition, culminating in a lack of profitability or dividend quality screens. The absence of such guardrails has left investors vulnerable to significant value erosion, as evidenced by the decline in stock prices and dividend cuts.
Evaluating SPYD’s Fundamentals and Performance
When digging into the dividend grades, a pattern emerges. Companies with low grades were indeed not on solid financial footing, leading to subsequent dividend slashes. Therefore, the relevance of dividend safety grades becomes evident, offering investors a defensive stance against value erosion. A comparison with other ETFs highlights SPYD’s shortcomings in dividend consistency and growth, crucial factors for long-term investments.
Performance Comparison
Compared to other ETFs, SPYD’s performance is lackluster at best. Since its inception, SPYD has lagged significantly behind its counterparts, with marked drawdowns and failure to recover from losses. The absence of safety guardrails in its high-dividend strategy has proven to be a fundamental flaw, resulting in a minimal capital gain prospect on top of a near 5% dividend yield at best.
Assessing Sub-Industry Fundamentals
Delving into SPYD’s fundamentals by sub-industry only serves to reinforce the ETF’s declining trajectory. With estimated negative earnings growth and a high forward earning ratio, SPYD falls short against its peers, further compounding its vulnerabilities.
