A Fund for Tech Stocks That Pay Juicy Dividends
A fund loaded with big tech firms yields almost as much as the market’s 2%.
On a relative basis, it has been a subpar year for big tech. Over the past year, the group rose 23%, but that lagged Standard & Poor’s 500-stock index by 7 percentage points. That’s one reason tech stocks, which historically have been more expensive than the broad stock market, are looking like bargains these days. The typical large tech-company stock trades at 14 times estimated 2014 profits, while the S&P 500 sells for 15 times earnings.
Technology Select Sector SPDR (symbol XLK) offers broad exposure to technology, but it’s not exactly a pure play on the sector. The exchange-traded fund tracks an index of 72 established firms in the S&P 500, including six telecom companies. The phone companies help boost the ETF’s dividend yield to 1.7%, close to the 2.0% yield of the S&P 500.
Because the ETF is heavy on large companies, the fund hasn’t been as hot as Internet-focused ETFs, which invest in faster-growing firms. Some of those ETFs have gained upward of 40% over the past 12 months, boosted by big gains from the likes of Netflix (up 348%) and Pandora (up 226%). But Technology SPDR hasn’t experienced the same ups and downs, either—over the past five years, it has been about 25% less volatile than the PowerShares Nasdaq Internet ETF.
In keeping with the benchmark it tracks, the ETF is rebalanced quarterly. The index holdings are weighted by market value, but that rule goes by the wayside if a stock exceeds 25% of the fund’s assets.