GlobalX SuperDividend US ETF (div) 1.27%)) and SPDR Portfolio S&P 500 High Dividend ETF (Spyd 1.51%)) Both have similar goals to buy high-yield stocks. But they try a little differently.
Is 4.1% of the SPDR Portfolio S&P 500 High Dividend ETF a better bet than the 5.4% yield on the Global X SuperDividend US ETF?
What does the SPDR Portfolio S&P 500 Dividend ETF do?
The SPDR Portfolio S&P 500 High Dividend ETF is very easy to understand. It starts by looking at only the internal dividend paying stocks S&P 500 (^gspc 2.13%))which is generally a curated list of large corporations and is intended to represent the broader US economy. Dividend payers are lined up by dividend yield, from highest to lowest.
The 80 best stocks are placed in ETFs using comparable weighting methodologies, with each stock having the same impact on overall performance. Aside from the equal bit, this is a very simple approach.
Image source: Getty Images.
Is Global X doing more than our ETF?
The Global X SuperDividend US ETF is much more complicated. Screening begins by examining beta, a measure of volatility compared to the wider market. Beta versions above 1 suggest that inventory is more volatile than the market, while beta versions below 1 suggest that it is less volatile. Global X SuperDividend US ETFs only select from stocks with beta versions below 0.85. The next pass is to eliminate stocks with dividend yields of less than 1% or more than 20%.
The remaining shares will then be checked to ensure that they have paid dividends for at least the past two years, making sure that the current dividend equals 50% of the previous year's dividend. This last one is interesting as companies that cut dividends can stay in the mix. From this final list, 50 stocks with the highest dividend yields have been selected. Equal weighting methodology applies, similar to the SPDR Portfolio S&P 500 high dividend ETF.
Image source: Getty Images.
Beta vs S&P 500 index… and equal weighting
Choosing stocks using only high yields as a determinant is a risky approach to investment. The best inventory list essentially includes companies that are not preferred on Wall Street for essentially important reasons. Therefore, both the SPDR Portfolio S&P 500 high dividend ETF and the Global X SuperDividend US ETF are taking steps to reduce risk.
The SPDR Portfolio S&P 500 High Dividend ETF relies on the selection criteria for the S&P 500 index. Around 500 shares in the index are selected by the committee because they are large and economically important. It will essentially eliminate less desirable companies over time.
The Global X SuperDividend US ETF uses beta versions and is particularly looking to find low volatile stocks. On the other hand, eliminating yields above 20% removes the most strange yield situations where deep analysis is likely to be required to acquire the handle.
Meanwhile, the use of equal weighting by both these Exchange Trade Funds (ETFs) effectively limits the damage that one share can make on the overall portfolio performance. That said, there is also a limit to the amount of profit you can make from a single investment. However, risk control is an important aspect of both these ETFs.
Beta appears to be a limiting factor
As the chart highlights, over time, the Global X SuperDividend US ETF lags on a gross revenue basis against the SPDR Portfolio S&P 500 high dividend ETF. Since the total revenue includes reinvestment of dividends, the graph essentially takes into account the significant yield difference between the two ETFs.
SPYD Total Revenue Price Data based on data YCHARTS
However, this chart is even more pronounced. This shows the return of price only in total returns. Essentially, price-only returns are what investors see using dividends to pay their living expenses. And the numbers are pretty bad for the Global X Superdividend Us ETF, which has lost around 25% of its value over the past decade.
The SPDR Portfolio S&P 500 High Dividend ETF increased its value by approximately 45%. That's a huge 70% point difference!
Spide Data based on data YCHARTS
Each of these ETFs spews the last one chart showing actual dividend payments. Although dividends in the SPDR Portfolio S&P 500 high dividend ETF are volatile quarterly, please note that they are trending beyond the dividends paid by the Global X SuperDividend US ETF. Meanwhile, the Global X Superdividend Us ETF dividend has fallen over time.
SPYD dividend Data based on data YCHARTS
This actually makes perfect sense. Asset-based growth allows the SPDR Portfolio S&P 500 High Dividend ETF to have more capital and generate more dividends. A shrinking capital base means that GlobalX's SuperDividend US ETFs have less capital and therefore their ability to generate dividends.
Dividend investors have a pretty clear winner
When reinvesting dividends or using them to pay for living expenses, the SPDR Portfolio S&P 500 High Dividend ETF looks like a better long-term choice than the Global X SuperDividend US ETF. Simply put, adding beta to the mix has proven so far to be too big to justify adding GlobalX Super David to its revenue portfolio.
Of course, this is unless you are trying to limit short-term volatility during periods of market uncertainty. However, such tactics are actually a short-term approach. If you are a purchase and retention investor, the SPDR Portfolio S&P 500 High Dividend ETF looks like the winner here.
