The first half of 2020 tried dividend investor patience amid a spate of payout cuts and suspensions, but with interest rates low and dividend confidence rebounding, the ALPS Sector Dividend Dogs ETF (SDOG) is an exchange traded fund worth revisiting.
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.
“Companies are growing more confident in growing dividends again, even as another surge in Covid-19 cases threatens earnings. This could mark a nice opportunity for income-seeking investors,” reports Jacob Sonenshine for Barron’s.
Investors should consider quality dividend growth stocks that typically exhibit stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders, and management team convection in their businesses.
SDOG: On the Mend
SDOG yields 4.21%, which alone is alluring, but the fund is also showing noticeable signs of life. Over the past month SDOG is up 8.39%, reflecting renewed enthusiasm for dividend stocks.
Rebounding S&P 500 earnings support the case for SDOG entering 2021.
“And now S&P 500 per-share earnings are expected to bounce 22% in 2021—to above 2019 levels—according to FactSet estimates. As a result, companies are feeling better about returning more of their capital to shareholders,” according to Barron’s.
Another benefit of SDOG is its exposure to the value factor, which could be in play following the upcoming presidential election, particularly as cyclical sectors stand to rebound now that former Vice President Joe Biden is president-elect.
“S&P 500 dividends are expected to grow 3% in 2021 from 2020, according to FactSet. The payout ratio—the percent of earnings companies use to pay dividends — is expected to fall to about 35% from 42%, but the pure growth in dividend dollars still provides an attractive yield opportunity at current prices,” according to Barron’s.
SDOG jumped more than 4% last week.
Other high dividend ETFs include the SPDR S&P Dividend ETF (SDY), iShares Select Dividend ETF (NYSEArca: DVY), and the iShares Core High Dividend ETF (HDV).
For more on cornerstone strategies, visit our 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.
