In recent weeks, equity income investors were treated to a flurry of encouraging dividend news with more arriving prior to the Thanksgiving holiday in the U.S.
Over the next year, S&P 500 payouts are poised to hit $525 billion — a new record. A data point like that could prove efficacious for a variety of dividend exchange traded funds, including the ALPS Sector Dividend Dogs ETF (SDOG).
SDOG, which tracks the S-Network Sector Dividend Dogs Index, is designed as a high-dividend strategy, but that doesn’t mean it’s not levered to rising payouts. In fact, rising dividends are an obvious positive for SDOG because they indicate that some companies with the high-dividend classification have the resources to sustain and grow payouts.
“The $525 billion annual indicated dividend rate for the S&P 500 is based on what companies are paying right now. That number is likely to go higher as companies continue to boost their dividends,” reports Lawrence Strauss for Barron’s.
SDOG holds the five highest-yielding stocks from 10 of the 11 GICS sectors, with real estate being the one excluded. The fund mitigates concentration and single stock risk by, upon rebalancing, capping sector weights at 10% apiece and components’ weights at 2%.
While that methodology means that SDOG is underweight to the popular technology sector, it also means the fund is more than adequately levered to dividend recovery stories in the energy and financial services, among others. Indeed, there are ample dividend rebound stories to evaluate this year.
“The pandemic took a big toll on dividends as many companies suspended or cut their payouts, while others maintained them at current levels. Companies such as Johnson & Johnson (JNJ) and Procter & Gamble (PG) did put through dividend increases early in the pandemic,” according to Barron’s. “In February of 2020, before the pandemic took hold, the annual indicated dividend rate for the S&P 500 was $507 billion but that dropped to $464 billion in July of that year.”
Fortunately, the dividend outlook is changing for the better, and it appears that this ebullience will carry over into 2022, indicating that it could be a desirable destination for equity income investors seeking above-average yields.
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).
For more news, information, and strategy, visit the ETF Building Blocks Channel.
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.
