Past S&P 500 Performance Bodes Well for This Dividend ETF

High-yielding stocks have history on their side. As the S&P 500 continues to climb to new highs, investors needn’t worry about a sudden drop in performance. That bodes well for high-yielding dividend funds.

“According to a report by Barron’s, high-yielding dividend stocks have consistently surpassed the S&P 500 performance over the last thirty years,” Yahoo Finance said, noting that on average, these stocks have been outperforming the index by over 20% “from the lowest point to the highest point in cycles lasting nearly a year.”

Additionally, the report noted that after hitting a peak, the high-yielding stocks’ performance doesn’t retreat. They historically sustained that above-average performance for another two years. Only twice in recent history were they worse than the broader index.

“There have been only two periods where high dividend-yielding stocks have performed worse relative to the S&P 500 on a year-over-year basis: the tech bubble and the pandemic,” said BMO’s Chief Investment Strategist Brian Belski. “According to our work, this type of abnormal underperformance has typically proved to be an inflection point historically. These stocks tend to stage an impressive recovery following such levels.”

Right now, big tech is the obvious play when it comes to price appreciation. But for dividends, a more discerning screener is necessary. More specifically, that is one that offers diversification across various sectors as opposed to concentrating on big tech. That said, an option to ponder is the ALPS Sector Dividend Dogs ETF (SDOG).

A Diversified Dividend Strategy

SDOG tracks the performance of the S-Network Sector Dividend Dogs Index (SDOGX). Inherent in this index is the application of the “Dogs of the Dow Theory.” The strategy combs the S&P 500 for holdings on a sector-by-sector basis starting first with the S-Network US Equity WR Large-Cap 500 Index.

With the fund’s focus on providing fixed income investors with the most attractive yield, SDOG provides high dividend exposure across 10 sectors of the market by selecting the five highest-yielding securities in each sector and equally weighting them. That equal weight strategy means each holding doesn’t exceed more than 2.22%, which is the highest allocation in its top holding (3M Company). This also means volatility is muted, eschewing the tendency for the broad S&P 500 to over-concentrate on large tech names.

For the past three years, the fund’s dividend has been steadily rising, which should appease fixed income investors concerned with outpacing inflation. As of February 29, its 30-day SEC yield stands at 4.26%.

SDOG Dividend Yield Chart

SDOG Dividend Yield data by YCharts

VettaFi LLC (“VettaFi”) is the index provider for SDOG, for which it receives an index licensing fee. However, SDOG is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SDOG.

For more news, information, and analysis, visit the ETF Building Blocks Channel.