An elegant and transparent dividend-focused strategy

This fund targets profitable U.S. firms with a long history of raising dividend payments.

Adam McCullough, CFA 7 December, 2017 | 6:00PM

In an article published earlier this year I highlighted several funds that paid the price for chasing high-dividend-yielding stocks. Putting too much emphasis on dividend yield can harm the total return of your equity-income investment, so it's important to focus on an investment's prospective total return -- not solely its yield -- as higher yields usually imply greater risk.

For example, high-yielding stocks could be under financial distress and thus may be more likely to cut their dividend payments than their lower-yielding counterparts. And many high-yielding stocks pay out a large share of their earnings as dividends, leaving a small buffer to cushion these payments if their business deteriorates.

 SPDR S&P Dividend ETF (SDY) effectively mitigates some of the risks associated with high-dividend-paying stocks by screening for highly profitable U.S. companies with a long track record of increasing dividend payments. This dual focus reduces the fund's exposure to firms with weak fundamentals that may not be able to sustain their dividend payments, which is a risk that often accompanies a narrow focus on yield. It earns a Morningstar Analyst Rating of Silver.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
AT&T Inc28.99 USD-0.82
National Retail Properties Inc39.81 USD-1.12
Target Corp179.82 USD1.10

About Author

Adam McCullough, CFA

Adam McCullough, CFA  Adam McCullough, CFA, is a manager research analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers passive strategies.

© Copyright 2020 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies