Value stocks ripped higher in the first half of the year before drifting lower in July as Treasury yields pulled back. Still, some market observers see long-term promise for the value factor, and that could be a sign the ALPS Sector Dividend Dogs ETF (SDOG) is worth a look.

Even with some weakness last month, SDOG, which tracks the S-Network Sector Dividend Dogs Index, is higher by about 17% year-to-date and yields 3.22% – more than double the dividend yield on the S&P 500.

Part of the reason for the recent pullback in value equities is that these names components are highly tethered to the economic recovery, meaning they’re cyclical stocks. As such, some investors are searching for greener pastures amid concerns about the impact of the delta variant of the coronavirus.

“While we are monitoring the data and studies coming out regarding the delta variant, we do not think it will meaningfully derail economic normalization and recovery. According to our valuations, we continue to see the best opportunity for long-term investors in the value category,” writes Morningstar analyst Dave Sekera.

SDOG’s equal-weight sector strategy also stands out in the current market. While it excludes real estate stocks, the fund’s allocations to the other 10 GICS sectors range from 9.38% to 10.48%. Combined, communication services and energy stocks represent about 20% of the fund’s weight. Those are two groups that are legitimately inexpensive today.

“Across our sector coverage, only two are undervalued and two are fairly valued. At a price/fair value of 0.84, the energy sector remains the most undervalued, and the communications sector is a close second at 0.90,” says Morningstar’s Sekera.

AT&T (NYSE: T) and Exxon Mobil (NYSE: XOM) are among the stocks from those sectors that are undervalued. Morningstar adds that the defensive utilities sector, which SDOG is significantly overweight relative to the S&P 500, is also worth considering because that group is fairly valued. That may not sound like something to brag about, but when seven of the 11 S&P 500 sectors are viewed as overvalued, fairly valued may just be something to crow about.

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).

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.