The ALPS Sector Dividend Dogs ETF (SDOG) sports a dividend yield of 3.19%. These days, that certainly qualifies as attractive, but there’s much more to the story with this exchange traded fund.

SDOG follows the S-Network Sector Dividend Dogs Index (SDOGX). That index is a departure from prosaic dividend benchmarks in that it equally weights stocks and sectors (real estate is excluded). Those are favorable traits at a time when supposedly broad-based equity benchmarks are becoming increasingly concentrated in a smaller number of stocks.

“SDOGX’s equal weighting scheme reduces sector bias that can be found in broad-based U.S. equity indexes like the S&P 500. While the S&P 500 is broad-based in the sense that it represents the larger market, its sector diversity has actually diminished over the years. One of the most noticeable changes to the U.S. market has been the growth of the technology sector, and these companies have some of the highest market caps within the domestic equity space,” notes Alerian analyst Roxanna Islam.

The result of the stellar runs for some growth stocks in recent years is that today, the S&P 500 allocates 27.84% of its weight to tech stocks — more than double its second-largest sector weight, which is healthcare. That’s fine when tech is working, but it can leave investors wanting more when other sectors come into style.

For example, energy was the best-performing sector in the S&P 500 last year, and that’s the case to start 2022. However, the S&P 500 devotes just 3.82% of its weight to energy stocks. Conversely, SDOG has a weight of 11.31% to that group. That goes a long way toward highlighting why SDOG is higher on a year-to-date basis while the S&P 500 is lower. SDOG offers other perks, too.

“Other dividend indexes may focus on high yields, which tend to overweight sectors like financials or healthcare. SDOGX’s equal weighting provides sector diversity, while selecting stocks with the highest dividend yield at the end of each year,” concludes Islam. “The strategy is constructed to pick stocks that are the cheapest in their sector, with the assumption that prices will appreciate throughout the year and revert to the mean. At the end of each year, the companies with lower yields are removed and replaced with cheaper, higher yielding stocks, which gives the index opportunity to again capture price improvement from discounted companies while taking advantage of high dividend income.”

Other high-dividend ETFs include the SPDR S&P Dividend ETF (SDY), the iShares Select Dividend ETF (NYSEArca: DVY), and the iShares Core High Dividend ETF (HDV).

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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.