With the market regarding growth and momentum stocks this year, some dividend strategies are lagging, but dividend exchange traded funds should not be ignored as an avenue for portfolio stability and income.
For example, the ALPS Sector Dividend Dogs ETF (NYSEArca: SDOG) sports an enticing dividend yield of 3.3%, which is well above what investors will find on 10-year Treasuries or the S&P 500. 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.
Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock full of stocks that have the potential to be future sources of dividend growth.
“This correlates with at least three premia factors: Value, Low Volatility and Quality so it has the potential to be a robust filter for outperformance. SDOG’s approach may hit the value factor, but it falls well short on low volatility. Quality is an open question, but my gut tells me that selecting for losers is probably not going to pull out companies that rank at the high end of the quality scale,” according to a Seeking Alpha analysis of dividend ETFs.