Want S&P 500 (SPY) ETF performance with high dividends? Look at S&P SPDR High Dividend Yield (SDY) ETF

If you want to beat 70% of the market, simply put your money in the SPDR S&P ETF (SPY). However, if you really want to build wealth or, if want SPY performance with income generating cash, then look at the SPDR S&P High Dividend ETF (SDY).

The Power of Dividends

One of the most reliable ways to build wealth over time or build income immediately is through the power of dividends. This idea has lost some equity since the big bull run from 1980 to 2000. However, it should be noted that the market doesn't historically have 20 year bull runs. The market tends to have four up years broken up by a couple of down years. And it's the power of dividends that allows investors to profit in up and down years.

What makes up the SDY?

The SDY is made up of the 80 highest yielding stocks from the S&P 1500 composite. This universe of stocks reflects the S&P High Yield Dividend Aristocrat Index. Also, the stock must have had rising dividend payments for 25 years. This ensures that the 80 stocks are high quality stocks that have a long term track record of profits and dividends. Other important information about the SDY include.

• Stocks must have a float market cap of over $500 million - This ensures that no smaller, more unstable companies are not included in the ETF. It also ensures that a failing company, that has fallen below the $500 million cap is eliminated from the ETF.
• The entire universe of stocks are evaluated every December - To ensure that the ETF has the highest yielding stocks, the market is evaluated and new stocks are rotated into the ETF.
• No single stocks will gave more than 4% weight in the index - This prevents one stocks from having too much influence in the overall index.

SPY performance versus SDY

The SDY slightly underperforms the SPY. From 2006 to 2011, the SPY is flat while the SDY is down 6%. However, when you include the annual dividend yield of 3% to 5% from the SDY, the High Yield Index actually gives you a better return. So what does that mean? It means that, while the SPY may have some high flyers, like Apple, that can outperform the SDY, the SDY will give you reliable income will ensure you get a close performance of the SPY.

Long Term Forecast for the SPY and SDY

While people have been talking about hyperinflation or deflation coming to the United States, it is most likely that the markets will remain flat as the governments and financial world works out its debt and currency problems. In this era of stagnating stock performance, profitable companies will use the power of dividends to attract investors. This will give the SDY the opportunity to outperform the SPY, when dividends are factored into returns.

Is SDY right for me?

SDY is a great ETF for people who want income or want to build wealth. If you are in your 30s to 50s, re-investing your dividends - by purchasing more SDY shares - can help you build a health portfolio for your retirements.

For retirees, the SDY will allow you to own the 80, most reliable S&P companies, that have been paying increasing dividends for the past 25 years. This gives you reliable income and the SDY's universe of stocks ensures you participate in any bull market run.

Summary

The SDY allows you to have SPY like performance with the advantage of rising dividends. The SDY ETF is realigned every year to ensure the basket of stocks have the 80 best dividend paying companies, with rising dividends for the past 25 years. Before opening a position, please ensure the SDY is right for your investing goals.

Resources:

Here is the stock quote for SPDR S&P High Yield ETF (SDY)

Here is information from, on the S&P High Yield Dividend Aristocrats, from Standard & Poors.