The cyclical rally is supportive of some high dividend sectors, providing catalysts for assets like the ALPS Sector Dividend Dogs ETF (SDOG).
Even with an impressive year-to-date gain of 20.63%, SDOG yields 3.45%, making it a standout on that basis in today’s low-yield environment. More good news for SDOG: high dividend stocks are still attractive on their valuations.
“Michael Fredericks, Head of Income Investing for BlackRock’s Multi-Asset Strategies and Solutions team, shares his equity counterpart’s affinity for dividend stocks, and sees a particular opportunity after the valuations of high-dividend stocks were beaten down last year,” according to BlackRock research. “He cites the potential for company dividends to grow across time as a benefit versus bond coupons, which are very low and fixed to maturity.”
More ‘SDOG’ Sparks
Cyclical stocks, of which plenty reside in SDOG, are getting a lift this year because the U.S. economy is emerging from the coronavirus recession.
Additionally, with the aforementioned 3.45% dividend yield, SDOG looks attractive compared to some popular aggregate bond indices.
With “the acceleration in economic growth as another reason to question the role of traditional bonds in a portfolio, as rising bond yields mean falling bond prices. He is cautious on investment grade bonds, mortgages and the quality parts of fixed income that make up the Bloomberg-Barclays Aggregate Bond Index,” adds BlackRock.
Although some high dividend sectors, such as utilities, struggle against the backdrop of rising Treasury yields, SDOG’s exposure to energy and financial services stocks offsets that vulnerability while positioning the fund to remain sturdy even if 10-year yields approach 2%.
SDOG remains a consideration in a rising 10-year yields scenario because that uptick is punitive for higher quality, but it doesn’t have to be for all corners of the equity market.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
