These 3 Dividend Stocks Make a Strong Case for Skipping XLP

Coca-Cola is up 30% YTD with guided comparable EPS growth in the 9% to 10% range, while Altria yields over 6% with 56 consecutive years of dividend increases.

XLP's blended yield sits near 2.5%, dragged lower by Costco and struggling packaged-food names that dilute the fund's strongest income producers.

Owning KO, PG, and MO directly delivers a yield above 4% with no expense ratio, though Altria's regulatory risk demands careful position sizing.

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The Consumer Staples Select Sector SPDR Fund ( NYSEARCA:XLP ) is the default parking spot for investors who want defensive exposure, a decent dividend, and the comfort of household-name brands. It has done its job in 2026, gaining 11.39% year to date through August 28, and its $13.6 billion in net assets confirms how widely held it is. But once you look inside XLP, the case for owning three of its biggest positions directly, rather than the wrapper around them, gets hard to ignore.

XLP is a market-cap-weighted basket of roughly three dozen U.S. consumer staples names. Its top disclosed holdings, as of June 30, 2026, are Walmart at 10.80%, Costco at 9.03%, Procter & Gamble at 7.43%, Coca-Cola at 6.85%, and Philip Morris International at 6.13%. Altria sits at 4.53%. The rest is a long tail of Clorox, Hormel, Brown-Forman, and other names doing very little for either yield or growth.

That tail is the problem. The ETF's blended yield lands near 2.5%, dragged down by low-yielding retailers like Costco and by struggling packaged-food names. If your goal is defensive income, you are paying to own dozens of positions that dilute the two things staples investors actually want: fat, growing dividends and durable pricing power.

Coca-Cola ( NYSE:KO ) is up 29.98% year to date, nearly triple XLP's return. The second-quarter report drove it: adjusted EPS of $0.97 beat estimates by 4.04%, revenue rose 6.7% year over year, and global unit case volume grew 5%. Management then raised full-year guidance to organic revenue growth of roughly 5% and comparable EPS growth of 9% to 10%.

The dividend just stepped up to $0.53 quarterly, an annualized $2.12 forward payout, extending a streak that stretches back six decades. Yield of 2.34% is close to XLP's blended yield, but you get it alongside double-digit earnings growth. XLP holders get the same Coke exposure diluted seven-to-one.