With interest rates still low, investors need to think about new strategies for generating retirement income beyond portfolios heavily tilted toward fixed income.
Among equity income options, investors will likely look at dividend-paying stock exchange traded funds (ETFs). While equity yields have been historically lower than fixed-income payouts, equities offer more attractive long-term capital appreciation.
However, not all dividend strategies are created equal. Looking ahead, investors may take a look at mid- and small-cap dividend growth strategies that have shown strong potential. The ALPS Sector Dividend Dogs ETF (NYSEArca: SDOG) is one ETF that is a departure from the norm among dividend ETFs and that is a good thing.
Related: Surging Utilities-Heavy Dividend ETFs
SDOG is an equal-weight ETF and as has been seen over the years with a plethora of ETFs, equal-weighting works and it is working with SDOG. SDOG has an international counterpart, the ALPS International Sector Dividend Dogs ETF (NYSEArca: IDOG).
For dividend investors looking for mostly developed market ex-U.S. exposure, IDOG merits consideration. ALPS identifies the five highest-yielding securities in the 10 GICS sectors on the last trading day of November. From there, IDOG is rebalanced quarterly in an effort to keep sector weights in the area of 10% and individual holdings at around 2%.
[related_stories]SDOG “takes the Dogs of the Dow strategy, which invests in the 10 highest-yielding stocks in the Dow Jones industrial average, and applies it to the top yielders across the 10 sectors of Standard & Poor’s 500-stock index. The fund’s 49 stocks – representing the highest yielders in each sector – are equally weighted. So each stock represents roughly 2% of the ETF’s assets, and each sector, 10%. From the ETF’s launch in June 2012, it returned 15.7% annualized, outpacing the returns of two of the most popular dividend ETFs,” according to Kiplinger’s Personal Finance.
SDOG tries to reflect the performance of the S-Network Sector Dividend Dogs Index, which applies the “Dogs of the Dow Theory” on a sector-by-sector basis using the S&P 500 with a focus on high dividend exposure.
Related: 5 Strong European Dividend ETF Ideas
“Stocks have high yields for two reasons: 1) Firms are very generous or 2) share prices have been beaten down enough to give it a high yield. Any “dogs” strategy involves buying whatever stocks underperformed in the past year. The idea is that last year’s losers can become the next year’s winners as investors try to take advantage of more attractive valuations and higher dividend yields as a result of their losses,” according to InvestorPlace.
Top holdings in SDOG include Dow components Pfizer (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ) as well as AT&T (NYSE: T).
For more information on the Dividend ETF market, visit our Dividends category.
ALPS Sector Dividend Dogs ETF
