On a historical basis, when value stocks outperform growth counterparts, that scenario often lasts for years. However, growth can do the same, as highlighted by its decade-plus streak of topping value.
Value finally gained some momentum last year, and it’s carrying over into 2022, providing support for exchange traded funds such as the ALPS Sector Dividend Dogs ETF (SDOG). Owing to the fact that the value resurgence is still in its nascent stages, investors are predictably pondering how long the durability and good times will last this year.
The good news is that SDOG is not only ideally suited for long-term holding periods, allowing patient investors to ride a potentially lengthy value rally, the fund is also ideally positioned for the current market environment.
“Value investing—buying stocks that are cheap on measures such as earnings or book value—is having a renaissance. Up to last Thursday, large value stocks beat more expensive ‘growth’ stocks by the most of any 50-day period since the technology bubble burst in 2000-01, with the exception of the post-vaccine rebound early last year,” reports James Mackintosh for the Wall Street Journal.
SDOG is already strutting its stuff this year. The fund is up 2.58% year-to-date while the S&P 500 is lower by 3.71%. Rising bond yields could be one catalyst, perhaps surprisingly, in favor of SDOG.
“One interpretation is that the leap in yields was the pin that pricked the bubble in growth stocks, shocking investors out of their lazy assumption that Big Tech just always went up. For hard-core value investors (and after years of underperformance, they have to be hard-core), this marks the moment when the purchase of cheap stocks can return to its rightful place as a leading strategy,” according to Mackintosh.
In the past, rising bond yields were viewed as punitive to high dividend strategies. This year, things could be different. In the case of SDOG, the ETF sports a dividend yield of 3.17%, meaning that 10-year Treasury yields would need to rise to nearly unthinkable levels to make those bonds more attractive than SDOG.
Fueling the SDOG and value cases is dividend growth. Many domestic companies are flush with cash, giving them the capability to boost payouts this year, and they’re aware of the competition from higher bond yields, indicating that shareholder rewards are likely to be prioritized this year.
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).
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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.
