XLP Investors Urged to Consider Direct Holdings in KO, PG, and MO

The Consumer Staples Select Sector SPDR Fund (XLP) has been a safe-haven investment for those seeking defensive exposure and a decent dividend yield. However, a closer look at its holdings reveals that owning three of its biggest positions directly might be a better option. Coca-Cola, Procter & Gamble, and Altria are among the top disclosed holdings in XLP, with yields ranging from 2.34% to 6.27%. These companies have delivered strong dividend growth records, but their exposure is diluted within XLP.

Coca-Cola has been a standout performer, with a 30% year-to-date return and guidance for comparable EPS growth of 9% to 10%. The company's quarterly dividend just stepped up to $0.53, an annualized forward payout of $2.12. Procter & Gamble, on the other hand, has underperformed, pushing its yield to 2.98% and forward P/E down to 20. Despite this discount, management plans to pay out roughly $10 billion in dividends and buybacks in FY2027.

Altria yields 6.27%, trades at a forward P/E of 12, and just raised its quarterly dividend to $1.11. However, the company's regulatory risk is a concern, making it essential to carefully position-size this holding. A blend of KO, PG, and MO delivers a yield well north of 4% and captures most of XLP's return.