4 Dividend-Paying ETFs to Buy in December

NYSE: SPY | SPDR S&P 500 ETF Trust News, Ratings, and Charts

SPY – Amid the holiday season, there has been a surge in the number of coronavirus cases, which is keeping the markets volatile. This, along with the ultra-low interest rate environment, has made dividend stocks and ETFs a safer investment option. The SPDR S&P 500 (SPY), iShares iBoxx $ High Yield Corporate Bond ETF (HYG), SPDR S&P Dividend ETF (SDY) and SPDR Select Sector Fund – Energy Select Sector (XLE) offer solid dividend income at lower risk, compared to dividend-paying stocks.

Amid the holiday season, the United States has been witnessing a spike in the number of coronavirus cases. As people travelled across the country to celebrate Thanksgiving, the total number of coronavirus cases in the country increased significantly.

Though the positive vaccine news helped the stock market show some resilience, the concerns over the second wave, and related economic impact, are expected to keep markets volatile in upcoming months. Amid this market uncertainty, and near-zero interest rate environment, it is wise to hedge your portfolio against risks by investing in high dividend-paying financial instruments.

While there are good dividend stocks that one can bet on right now, investing in dividend-paying ETFs could help reduce risk to some extent, as ETFs offer exposure to a basket of equities.

The SPDR S&P 500 (SPY), iShares iBoxx $ High Yield Corporate Bond ETF (HYG), SPDR S&P Dividend ETF (SDY), and SPDR Select Sector Fund – Energy Select Sector (XLE) track large-cap companies that are paying dividends over several years. So, betting on these ETFs could help you earn steady income.

SPDR S&P 500 (SPY)

One of the largest and most heavily-traded ETF in the world, SPY, follows the S&P 500 Index. Trading since 1993, this ETF invests in large cap U.S. stocks, many of which pay regular dividends. Most of them have also consistently increased dividend payouts. SPY has $323.8 billion in assets under management (AUM).

The top 3 holdings of the fund are Apple Inc. (AAPL), Microsoft Corporation (MSFT), and Amazon.com, Inc. (AMZN), with the weights of 6.14%, 5.36%, and 4.40%, respectively. SPY’s expense ratio of 0.09% is lower than its category average of 0.36%. It has gained 19.8% over the past six months, and 4.4% in the past three months. SPY pays an annual dividend of $5.68, yielding 1.6%. Its 4-year average dividend yield is 1.9%.

SPY has gained 13% so far this year to close Friday’s trading session at $363.67. The ETF witnessed a net inflow of $1.97 billion in the past six months. It is currently trading just 0.2% below its 52-week high of $364.38.

How does SPY stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Industry Rank

A for Overall POWR Rating

It is also ranked #1 out of 198 ETFs in the Large Cap Blend ETFs group.

iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

HYG, one of the most widely used high yield bond ETFs, provides exposure to a broad range of U.S. dollar-denominated, high yield corporate bonds. With an AUM of $27.5 billion, HYG closely tracks the iBoxx $ Liquid High Yield Index.

HYG has an expense ratio of 0.49% which is at par with the category average. The fund pays an annual dividend of $4.22, translating into a 4.89% yield. Its average four-year dividend yield stands at 5.4%.

HYG has gained 25.9% since hitting its 52-week low of $67.52 in March. The fund has witnessed net inflows of $2.82 billion in the past six months and has gained 5.4% in the same period. It closed Friday’s trading session at $86.41 and is currently trading 2.4% below its 52-week high.

HYG’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade and Buy & Hold Grade and a “B” for Industry Rank. Among the 48-ETF High Yield Bond ETFs group, it’s ranked #1.

SPDR S&P Dividend ETF (SDY)

One of the more stable ETFs, SDY follows the S&P High Yield Dividend Aristocrats Index. This is an ideal pick for investors focused on generating high yields from dividends as the fund only includes companies that have increased dividends every year for at least 25 consecutive years, and are most likely to continue to pay out dividends even in the future. SDY has $17.3 billion in AUM.

SDY is linked to the index consisting of roughly 60 holdings. Exxon Mobil Corporation (XOM) making up for 3.75% of the fund is the top holding, followed by Chevron Corporation (CVX) with a 2.84% weight, and People’s United Financial, Inc. (PBCT) at 2.48%. SDY’s expense ratio of 0.35% is lower than the category average of 0.53%. It pays an annual dividend of $2.83, which yields 2.7% on the prevailing price. Its average four-year dividend yield stands at 3.5%.

The fund has witnessed net inflows of $88.81 million in the past month and has gained 11.8% in the same period. SDY has gained more than 45% since hitting its 52-week low of $67.57 and closed Friday’s trading session at $105.67. The ETF is currently trading 2.9% below its 52-week high of $108.81.

It’s no surprise that SDY is rated a “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank and a “B” for Peer Grade. Within the Large Cap Value ETFs group, it’s ranked #6 out of 82 ETFs.

SPDR Select Sector Fund – Energy Select Sector (XLE)

XLE mainly focuses on the U.S. energy industry and invests in many of the world’s largest oil producers. The fund mostly includes large-cap stocks as it picks stocks from the S&P 500, rather than the total market. The fund ensures that no single security exceeds 25% at each quarterly rebalance. With AUM of $13.1 billion, the fund follows the S&P Energy Select Sector Index.

XLE’s main holdings include CVX making up for 23.55% of the fund, XOM at 21.11% and ConocoPhillips (COP) with a 4.87% weight. XLE has an expense ratio of 0.13%, which is lower than the category average of 0.46%. XLE pays $3.99 annually as dividends to its investors, translating into a 10.2% yield. Its average four-year dividend yield stands at 4.8%.

The fund has witnessed net inflows of $1.39 billion in the past three months and has gained 8.7% in the same period. XLE has gained 50.5% since hitting its 52-week low of $22.88 in March. It closed Friday’s trading session at $38.91.

XLE’s strong fundamentals are reflected in its POWR Ratings It has a “Buy” rating with a “B” in Trade Grade. Within the Energy Equities ETFs group, it’s ranked #11 out of 37 ETFs.

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SPY shares were trading at $361.85 per share on Monday afternoon, down $1.82 (-0.50%). Year-to-date, SPY has gained 14.04%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Manisha Chatterjee


Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...


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