The Federal Reserve’s decision to raise interest rates by 75 basis points on Wednesday shook markets.
As near-term volatility is expected to increase, the ALPS Sector Dividend Dogs ETF (SDOG) is a useful tool for achieving a diverse portfolio of large-cap U.S. stocks while also seeking to capture a meaningful dividend yield.
“SDOG provides diversified exposure to highest dividend yielding stocks of high-quality companies in each sector. The elevated yields should provide some downside protection while offering upside potential more than corporate bonds,” said Todd Rosenbluth, head of research at VettaFi.
The fund generally maintains a dividend yield much greater than that of the S&P 500, as well as exceeding many other dividend-focused ETFs. Companies paying dividends are generally regarded as more established and stable, and less likely to be as volatile.
SDOG tracks the S-Network Sector Dividend Dogs Index (SDOGX), which provides enhanced yield and diversified sector exposure. The index uses the S&P 500 as its starting universe and selects the five stocks with the highest dividend yield in 10 sectors. Real estate is excluded.
These stocks are equally weighted within the index, resulting in an even 10% weighting to each of the index’s 10 sectors. That makes it very different from many dividend-focused products, which tend to have biases towards utilities and financials. This approach has mitigated the negative impact of the tech sector sell-off in early 2022 while providing an attractive dividend yield.
SDOGX’s equal weighting scheme reduces sector bias that can be found in broad-based U.S. equity indexes like the S&P 500. Due to the S&P 500’s market-cap weighting scheme, it has been tilting increasingly tech-heavy throughout the years, while underweighting sectors like materials, utilities, and energy.
Aside from SDOG, other strong defensive ETF offerings include the SmartETFs Dividend Builder ETF (DIVS) and the Schwab US Dividend Equity ETF (SCHD).
For more news, information, and strategy, visit the ETF Building Blocks Channel.
vettafi.com is owned by VettaFi, which also owns the index provider for SDOG. VettaFi is not the sponsor of SDOG, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.
