Dividend growth for the S&P 500 was decent last year, but with income investors fretting about the impact of rising interest rates on dividend stocks, dividend exchange traded funds are sure to be scrutinized this year.
However, the ALPS Sector Dividend Dogs ETF (NYSEArca: SDOG) is one dividend worth considering. 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.
SDOG’s underlying has a dividend yield of nearly 4% and a low beta, indicating the combined 30.5% to three defensive sectors – telecom, staples and utilities – helps reduce the fund’s volatility. SDOG charges 0.4% per year and can be traded commission-free on the Schwab ETF OneSource platform.
SDOG “targets the five highest yielding stocks from each of the ten GICS sectors (real estate is currently not considered) and equal weights them. The fund’s current yield of 3.3% far outweighs the S&P 500’s yield and constructs the portfolio in a way that doesn’t reach for dividend payers,” according to a Seeking Alpha analysis of the ETF.
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%.
Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock full of stocks that have the potential to be future sources of dividend growth.
“Stocks targeted with the Dogs strategy tend to exhibit a few appealing characteristics. First, they tend to have stronger balance sheets with cash flows that can support higher dividends. Going after higher yields does have the potential of getting investors into trouble if a distressed company with an artificially high yield sneaks its way into the portfolio. By and large, though, the companies in this ETF are big revenue generators with enough cash to maintain and grow dividend payments,” according to Seeking Alpha.
For more information on dividend stocks, visit our dividend ETFs category.