Dividend stocks stormed back late last year from some trouble spots in the first half of 2020 and with that comes a brighter outlook for 2021 and the ALPS Sector Dividend Dogs ETF (SDOG).
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 equal-weight methodology is important because it reduces sector-level risk and dependence of some groups that are considered to be imperiled value ideas.
Last year, several factors crimped dividend stocks.
“The pandemic and the related economic downturn hit many dividend-related sectors very hard, and then as equities rebounded across the world, that bounceback was really led by technology-related businesses that are not so rich in dividends–companies that were benefiting from the work-from-home and shop-from-home trends and not so much companies in dividend-related industries, sort of economically sensitive areas related to consumer or basic materials and energy, financial services,” according to Morningstar strategists.
A Better Outlook for the SDOG ETF in 2021
Sectors are equally weighted in SDOG, positioning the fund to capitalize on the resurgent energy sector, rebounding financial services names, and the value proposition offered by materials stocks.
Perhaps surprisingly, S&P 500 dividend payments actually hit record highs on an annual basis in 2020.
“Dividend payments to investors in the S&P 500 rose to a new record in 2020, up 0.7% to $58.28 per share from the previous record set in 2019,” reports Reuters.
While the short-term outlook for dividend stocks is compelling, so is the long-term thesis.
“We know that over the very long term, dividend-paying stocks are good bets. They tend to be solid businesses. We know that a substantial portion of the long-term total return from equity markets actually comes from dividends, reinvested dividends from dividend growth. We know that dividend businesses tend to be solid, more stable in their cash flows,” notes Morningstar.
SDOG yields 3.60% and is up 3.29% to start 2021.
Other high dividend ETFs include the SPDR S&P Dividend ETF (SDY), iShares Select Dividend ETF (NYSEArca: DVY), and 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.
