Investors looking for a shelter-from-the-storm play in early 2022 might want to consider high-dividend stocks, specifically the dogs of the Dow.
The dogs of the Dow are the 10 highest-yielding members of the Dow Jones Industrial Average at the end of a specific year. The notion is to buy those stocks in anticipation of them outperforming in the coming year.
This year’s dogs are Dow, Inc. (NYSE:DOW), International Business Machines (NYSE:IBM), Verizon (NYSE:VZ), Chevron (NYSE:CVX), Walgreens (NASDAQ:WBA), Merck (NYSE:MRK), Amgen (NASDAQ:AMGN), 3M (NYSE:MMM), Coca-Cola (NYSE:KO), and Intel (NASDAQ:INTC). Intel is the worst-performing member of that group year-to-date, but the semiconductor giant is still topping the S&P 500 by 250 basis points.
Investors looking to embrace the dogs should consider the ALPS Sector Dividend Dogs ETF (SDOG ). SDOG isn’t dedicated to the dogs of the Dow strategy. Rather, it holds the five highest-yielding stocks from 10 of the 11 GICS sectors, with real estate being the exception.
Still, that methodology turns up plenty of the dogs in SDOG. More importantly, SDOG’s strategy is working for investors this year. While the S&P 500 is off 9.2% year-to-date, SDOG is flat.
Of the 10 aforementioned dogs, SDOG is home to, in order, Dow Chemical, IBM, Amgen, Verizon, Walgreens, 3M, and Intel. Dow Chemical is the best-performing member of that group with a 6% year-to-date gain.
But now the dogs have some bite, at least in relative terms. "The Dogs so far have returned 1%, outperforming their noncanine Dow counterparts that have dropped 6%, and the S&P 500, which has retreated by 9%,” reports Steve Goldstein for MarketWatch.
Aside from the dogs, SDOG could be a winner this year due in part to its nearly 21.3% combined weight to the energy and consumer staples sectors — two groups with solid inflation-fighting capabilities. The S&P 500 allocates less than 10% of its weight to those two sectors.
With a dividend yield of 3.25%, SDOG could prove durable in the face of rising interest rates because even with rate hikes coming, 10-year Treasury yields are unlikely to get anywhere close to SDOG’s dividend yield.
Other high-dividend ETFs include the SPDR S&P Dividend ETF (SDY ), the iShares Select Dividend ETF (DVY ), and the iShares Core High Dividend ETF (HDV ).
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