The ALPS Sector Dividend Dogs ETF (SDOG) is a high dividend exchange traded fund and one that’s benefiting from the rotation to cyclical value assets. Yet there’s much more to the story, and that’s a positive for investors.

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.

The broader dividend climate is improving, and that’s relevant to SDOG because some high dividend stocks can be risky.

“Net indicated dividend rate change increased $18.0 billion, compared to $9.5 billion in Q4 2020, -$2.3 billion in Q3 2020, -$42.5 billion in Q2 2020, and -$5.5 billion in Q1 2020,” according to S&P Dow Jones Indices.

SDOG 3 Year Total Return

More Good Vibes for SDOG

Finally, value stocks are generating some well-deserved buzz, and for the first time in a long time, there are reasons to believe this rally isn’t a mere head fake. With so much talk of inflationary pressure picking up and the reflation trade having legs, SDOG remains useful in today’s environment.

Moreover, SDOG’s payout outlook appears solid as more domestic dividend companies are boosting payouts.

“Companies that suspended their dividends have started to pay again, while others who decreased their dividends or left them unchanged in 2020 have resumed increasing payments,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices. “The dollar amount of dividend increases in U.S. common stocks in Q1 2021 was the largest since Q1 of 2012 as reductions significantly declined in the quarter.”

SDOG could also be a play on increasing coronavirus vaccinations and dwindling case counts, because those factors could support ongoing dividend growth this year.

“Given the accelerating vaccine schedule and re-openings, projections call for record profits in the second half of this year, which, if the virus does not re-emerge, could fuel the way for more companies to feel secure about starting and increasing dividends.  For the S&P 500, 2021 is well on its way to a record payout, with a mid-single digit gain for the year in actual cash in shareholders pockets,” concludes Silverblatt.

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.