It's a well-diversified portfolio of high-quality dividend paying stocks, many of whom raise their dividends consistently. Among the top holdings are PepsiCo (PEP), Coca Cola (KO), AT&T (T), Chevron (CVX) and many other household names.
If markets continue to rise without any meaningful correction (over 5% e.g.), the underlying stocks should do well.
In the event of a pullback or even a prolonged period of underperformance, the dividends will soften the impact of the correction and will keep building for a future income stream.
Now, of course, I'm not suggesting you put all your eggs in one basket, as it were. So before any new or increase allocations to SDY, you should have already prepared your portfolio by trimming bond funds to the minimum. As I've pointed out before, whether interest rates rise or not, bonds are not holding their value as a whole.
Second, you may have positions in individual stocks that you feel are performers for the long haul, despite any dip which might occur tied to a pullback, correction or other. I'm not saying dump them, by any means, but check them again mid-year now that earnings seasons has pulled the curtain back. Make sure your assumptions about the fundamentals of those stocks still hold.
Furthermore, you may have investments in ETFs that have served you well. Now is the time to make sure that the bulk of their holdings are held in stocks whose fundamentals you can identify.
Characteristics to Seek Out
You want a combination of the following characteristics, but certainly all should be present in the single stocks you hold and the major holdings of ETFs in which you are invested:
- Strong balance sheets. I think Apple (AAPL) exhibits this characteristic very well.
- Visible and predictable earnings. One that I feel has proven itself in this particular regard is Verizon Communications (VZ).
- Above-category growth stocks. As Cognizant Tech Solutions (CTSH), demonstrates, it's not always the best-known names that are in the lead of their sectors.
- Consistent and rising dividends. For me, Royal Dutch Shell (RDS.B) is a classic example.
As a side note, our company holds Royal Dutch Shell in our "Dividend Busters Program." Part of the secret to identifying these high-quality, low-volatility, solid dividend paying stocks is to enlarge your sphere to include international stocks that meet these criteria and are available in the U.S. as ADRs.
When choosing ETFs, certainly any that holds a majority portion in these or similar stocks will provide you the balance of international exposure along with easy liquidity and solid performance.
At the time of publication the author had no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.