With many standard dividend exchange traded funds, investors must choose between high dividend and payout growth strategies.
In the strictest sense of those terms, the ALPS Sector Dividend Dogs ETF (SDOG) resides in the former category. A dividend yield of 3.22%, which is more than the comparable metric on the S&P 500, confirms as much. However, that doesn’t mean that SDOG doesn’t offer inroads to payout growth. It does, and the fund’s leverage to rising payouts is relevant today because that’s exactly what dividends are doing: rising.
“US dividends, which proved more resilient than those in many parts of the world during the onset of the pandemic last year, climbed 10% during the third quarter,” according to the latest edition of the Janus Henderson Global Dividend Index. “Notably, 97% of US companies raised their dividends or held them steady during the quarter, with companies in the financials, pharmaceuticals, and healthcare equipment and services sectors accounting for one-third of the increase.”
Janus Henderson’s sector commentary is relevant to SDOG because the ALPS fund equally weights its sector exposure, meaning that its sector weights range from 9.26–11.14%. Financial services and healthcare combine for almost 21% of the SDOG roster.
“Growth was strong in the US healthcare sector, where every company raised its dividend, and in the US mining sector, which doubled dividends year over year,” adds Janus Henderson.
Mining stocks reside in the materials sector, which is the third-largest sector exposure in SDOG at 10.23% and one that accentuates the fund’s cyclical value tilt.
Speaking of cyclical value and dividends, four of SDOG’s top 10 holdings hail from the energy sector, the best-performing group in the S&P 500 this year. That’s an important trait not just because of performance, but also because energy companies are minding spending and shoring up balance sheets — moves that are supportive of dividend sustainability. Add to that, the outlook for fourth-quarter dividend growth is compelling, too.
“The exceptional strength of Q3 payout figures, along with improved prospects for Q4, have led Janus Henderson to upgrade its global forecast for the full year. Janus Henderson now expects global growth of 15.6% on a headline basis, taking 2021 payouts to a new record of $1.46 trillion. Underlying growth is expected to be 13.6% for 2021,” concludes Janus Henderson.
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.
