Inflation continues running hot in the U.S., putting an additional burden on investors’ income needs. More income is necessary for portfolios to keep pace with rising consumer prices.
An effective avenue for investors to keep pace with and, in some cases, come out on top of inflation is with dividend stocks. More to the point, dividend growth, historically, offers investors a favorable inflation-fighting avenue. One way of getting on that game is with the ALPS Sector Dividend Dogs ETF (SDOG).
While SDOG is positioned as a high-dividend strategy — certainly a compelling trait in today’s low bond yield environment — many of the exchange traded fund’s components have impressive track records of growing payouts, demonstrating the fund’s utility in a high inflation climate.
“Dividend growth has remained more resilient than share appreciation during periods of high inflation,” said Goldman Sachs’s chief equity strategist David Kostin in a recent note. “Since 1940, real equity returns have turned negative on average when CPI inflation exceeded 5% and particularly when it registered above 6%, like it has recently.”
SDOG, which yields 3.26%, or more than double the S&P 500, doesn’t allocate more than 2.69% of its weight to any of its holdings, indicating that single-stock risk is relatively low in the fund. Still, several SDOG components make Goldman’s list of names with dividend growth potential that could top inflation.
Those names include Lumen Technologies (NASDAQ:LUMN) and Verizon Communications (NYSE:VZ). Gilead Sciences (NASDAQ:GILD) is one of the healthcare names on the Goldman list, and the biotechnology company is also an SDOG component.
SDOG also offers investors some exposure to the tech dividend growth theme by way of names such as International Business Machines (NYSE:IBM) and Intel (NASDAQ:INTC), both of which are SDOG member firms.
Another SDOG perk is that the fund allocates 11.59% of its roster to the energy sector — well above the weight to that sector in the S&P 500. That’s a plus because that sector’s payouts are poised to increase.
“The energy sector is expected to contribute the largest dividend growth. Analysts anticipate the sector will grow dividends by 27%, or more than three times faster than the S&P 500, and ExxonMobil and Chevron are expected to offer the largest payouts, according to analysts. Their combined payout is anticipated to equal 5% of the index’s total dividend for the year,” reports Samantha Subin for CNBC.
Exxon Mobil (NYSE:XOM) is SDOG’s second-largest holding at 2.68%.
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.
