Amid a rash of negative dividend action by S&P 500 member firms and many others in the first half of 2020, high dividend stocks spent much of this year under duress. But the ALPS Sector Dividend Dogs ETF (SDOG ) is up 14.51% over the past 90 days and not stopping there.
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 Dogs, of course, is a time-tested investment strategy that says to buy the 10 highest dividend-yielding stocks in the Dow,” reports Al Root for Barron’s. “High dividend yields usually mean low valuations or that something is going wrong at the companies. That makes Dogs of the Dow a classic value-oriented, contrarian investing strategy. Contrarian investors, often times, will pick recent losers, believing things will return to normal.”
The SDOG ETF Plays on Multiple 2021 Themes
Adding to the allure of high dividend strategies is that many companies are growing increasingly confident in their ability to service and grow dividends heading into 2021, meaning even some high-yield stocks could be back in style after this year’s rough patch.
Helped by its intersection with high yields, value, and cyclical stocks, SDOG is positioned for better things in 2021. After all, the Dogs strategy tends to be solid, a 2020 disappointment notwithstanding.
“And, of course, the Dogs strategy has worked. Coming into 2020, the Dogs outperformed Dow in seven of 10 years. Now that is seven out of the past 11. That is not bad,” writes Barron’s.
Dividend-paying stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return. And there’s still a case for SDOG’s value effect.
SDOG’s equal-weight methodology also means the fund allocates about 30% of its weight to the defensive consumer staples, healthcare, and utilities sector, a combination that can reduce volatility over time.
Other high dividend ETFs include the SPDR S&P Dividend ETF (SDY ), iShares Select Dividend ETF (DVY ), and iShares Core High Dividend ETF (HDV ).
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