Comparing High-Yield ETFs: Global X SuperDividend U.S. ETF vs. SPDR Portfolio S&P 500 High Dividend ETF
When it comes to high-yield investments, two prominent contenders often come to mind: the Global X SuperDividend U.S. ETF (NYSEMKT: DIV) and the SPDR Portfolio S&P 500 High Dividend ETF (NYSEMKT: SPYD). Both are designed to buy high-yield stocks, but they each take a distinctive approach to achieve this goal.
Yield: A Closer Look
Currently, the SPDR Portfolio S&P 500 High Dividend ETF boasts a yield of 4.1%, while the Global X SuperDividend U.S. ETF offers a more enticing 5.4% yield. But is a higher yield always the best indicator of a solid investment? Not necessarily.
Simplistic Approach vs. Complex Screening
SPDR Portfolio S&P 500 High Dividend ETF follows a straightforward method. The ETF focuses solely on dividend-paying stocks within the S&P 500, which includes established companies expected to represent the U.S. economy’s performance. The highest-yielding stocks are selected and equally weighted, ensuring that each stock contributes equally to the fund’s overall performance.
On the other hand, the Global X SuperDividend U.S. ETF utilizes a more intricate selection process. It starts by measuring stocks based on their beta—essentially a measure of volatility. Stocks with a beta greater than 1 are discarded, indicating that only lower-volatility options are considered. After filtering out stocks with dividend yields below 1% or above 20%, the remaining candidates must have consistently paid dividends for at least the last two years. This complex methodology also retains stocks with recent dividend cuts, focusing on resilience in a turbulent market.
Risk Management in Focus
Investing solely based on high yields can be perilous; the highest-yielding stocks often come from companies facing challenges. Fortunately, both ETFs have taken measures to mitigate risks. SPDR leverages the credibility of the S&P 500, while Global X emphasizes lower-volatility stocks to promote stability.
The equal-weighting methodology both ETFs employ ensures that no single stock can disproportionately affect performance. However, it can also cap the upside potential from individual high-performing stocks.
Performance Analysis
Historical performance might offer insightful implications for investors. Over time, the Global X SuperDividend U.S. ETF has consistently lagged behind the SPDR Portfolio S&P 500 High Dividend ETF in terms of total return, including dividend reinvestments. If dividends are reinvested or are used for living expenses, the SPYD appears to be the more favorable long-term investment choice.
Examining price-only returns reveals an even starker contrast: the Global X ETF has lost about 25% of its value over the last decade, whereas SPYD has appreciated by around 45%. This translates to a staggering 70-percentage point difference, which underscores the importance of strategic selection when choosing high-yield investments.
Dividend Trends
When evaluating the actual dividends distributed by both ETFs, SPDR exhibits more volatility on a quarterly basis, but its dividend payments have generally remained above those of Global X. Meanwhile, dividends from Global X have trended downward over time. One reason could be the asset base at play—SPYD has more available capital to distribute dividends, while Global X suffers from a declining capital base.
Conclusion: Which ETF is Superior?
For those committed to reinvesting dividends or requiring dependable income, the SPDR Portfolio S&P 500 High Dividend ETF emerges as the clear victor. Its methodology and consistent returns have placed it ahead of Global X in most metrics. Conversely, if your investment strategy prioritizes minimizing short-term volatility amidst uncertain markets, Global X may serve as a short-term tactical option.
Our recommendation remains: for buy-and-hold investors looking for a stable income stream, the SPDR Portfolio S&P 500 High Dividend ETF is the preferred choice, offering a promising long-term investment vehicle over its counterpart.
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