SDY Is a Popular Dividend ETF for Passive Income. But Is It the Best?

Globe and Mail

8 hours ago

When it comes to investing, it makes a lot of sense for many of us to opt for exchange-traded funds (ETFs), which are funds that trade like stocks. With classic mutual funds, if you want to buy into one, you place your order and it gets filled at the end of the day, at a price based on the closing prices of its components that session. With an ETF, you can place an order to buy at any time during the trading day and that order can be executed immediately.
ETFs come in a wide variety, and many are low-fee index funds, including the popular Vanguard S&P 500 ETF (NYSEMKT: VOO). It's worth considering dividend-focused ETFs, too, as they can deliver valuable income for decades, without your having to research and choose individual dividend-paying stocks.
One popular fund of this type is the SPDR S&P Dividend ETF (NYSEMKT: SDY). Would it be a good fit for your portfolio?
Why dividends?
Dividend-paying stocks are a more powerful tool for building investors' wealth than many people realize. Part of the reason is that in order to commit to paying a regular dividend, a company's management must be fairly confident in the reliability of cash flows, finding them sufficient to support the dividend. No company wants to have to shrink or eliminate a dividend, as that would be a red flag to investors.
Consider this tidbit from the folks at Hartford Funds: "Going back to 1960, 85% of the cumulative total return of the S&P 500 Index can be attributed to reinvested dividends and the power of compounding."
Meet the SPDR S&P Dividend ETF
SPDR S&P Dividend ETF tracks the S&P High Yield Dividend Aristocrats index, which restricts its components to companies in the S&P Composite 1500 that have increased their payouts annually for at least 20 consecutive years. The ETF recently yielded a solid 2.59%.
Here's how it has performed in recent years
Over the Past...
Average Annualized Gain
3 years
6.31%
5 years
11.34%
10 years
9.24%
15 years
11.12%
Source: Morningstar. Figures as of June 25, 2025.
You'll note that those are not the fattest returns -- but they come along with some durability, as not every company is so solidly built that it can not only pay dividends for at least 20 years, but increase them annually, too.
The SPDR S&P Dividend ETF recently held positions in 149 companies, and its top 10 holdings made up about 18% of its total value. Those recent top holdings were:
Stock
Percent of ETF
Microchip Technology
2.41%
Verizon Communications
2.36%
Realty Income
2.19%
Target
1.80%
Chevron
1.70%
Texas Instruments
1.62%
Archer-Daniels-Midland
1.39%
Eversource Energy
1.38%
Kimberly Clark
1.36%
NextEra Energy
1.34%
Source: Morningstar. Figures as of June 24, 2025.
Is the SPDR S&P Dividend ETF the best dividend ETF?
So -- is the SPDR S&P Dividend ETF the best dividend ETF? Well, sure, for some people. But there are other solid dividend-focused ETFs to consider. Here are some, along with an S&P 500 index fund, for comparison.
JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI)
8.01%
11.73%
N/A
iShares Preferred & Income Securities ETF (NASDAQ: PFF)
6.68%
3.22%
3.21%
Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD)
3.97%
13.34%
10.92%
Fidelity High Dividend ETF (NYSEMKT: FDVV)
3.02%
17.91%
N/A
Vanguard High Dividend Yield ETF (NYSEMKT: VYM)
2.86%
14.60%
10.08%
SPDR S&P Dividend ETF
2.59%
11.77%
9.29%
iShares US Real Estate ETF (NYSEMKT: IYR)
2.55%
7.26%
6.09%
iShares Core Dividend Growth ETF (NYSEMKT: DGRO)
2.23%
13.94%
11.75%
Vanguard Dividend Appreciation ETF (NYSEMKT: VIG)
1.79%
14.07%
11.83%
First Trust Rising Dividend Achievers ETF (NASDAQ: RDVY)
1.67%
17.61%
12.68%
Vanguard S&P 500 ETF (NYSEMKT: VOO)
1.25%
16.54%
13.15%
Source: Yahoo! Finance and Morningstar. Figures as of June 24, 2025.
Before you jump at the fattest yield you see, remember that dividend growth is important, too. An ETF with a yield of 4% today might be more tempting than one with a yield of 3%, but the fund with the 3% yield might be growing its payouts faster, and wind up delivering more actual income than the other within a few years. Remember that the SPDR S&P Dividend ETF is focused on dividend growers. Its quarterly payout in June 2025 was $0.927 per share, up from $0.68 in June 2020 and $0.503 in June 2015.
Note, too, that the JPMorgan Equity Premium Income ETF is a different kind of fund, not purely a holder of dividend-paying stocks. And the iShares Preferred & Income Securities ETF is focused on preferred stock, which tends to appreciate in value more slowly.
So dig in deeper into any ETF that intrigues you. Any of the ones above may serve you well, delivering increasing passive income to you and your portfolio for many years or decades.
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Selena Maranjian has positions in NextEra Energy, Realty Income, Schwab U.S. Dividend Equity ETF, and Verizon Communications. The Motley Fool has positions in and recommends Chevron, NextEra Energy, Realty Income, Target, Texas Instruments, Vanguard Dividend Appreciation ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.