THE ALPS Sector Dividend Dog ETF (NYSEARCA:SDOG) is an interesting fund to consider starting in 2024. This fund has caught the attention of many thanks to its innovative approach to portfolio construction, and could be a big winner in the future. year (at least on a relative basis).
SDOG is an exchange-traded fund, or ETF, that aims to provide investors with a high dividend yield coupled with consistent dividend growth. He uses a unique investment strategy known as the “Dow Dog Theory.” The Dogs of the Dow Theory is an investment strategy developed by Michael B. O’Higgins that involves selecting the 10 highest dividend-yielding stocks listed in the Dow Jones Industrial Average. The strategy suggests investing in these stocks with the expectation that their price will eventually rebound.
Unlike traditional applications of this theory, the SDOG selects its assets from the S&P 500 index (SP500) instead of the Dow Jones Industrial Average (DJI). The fund was established on June 29, 2012 and has since strived to maintain a balanced portfolio consisting of the best-performing stocks from each S&P 500 sector except real estate. It currently manages assets worth approximately $1.15 billion and has a total expense ratio of 0.36%.
SDOG Funds: A Closer Look
SDOG’s portfolio is equally weighted, which reduces the risk of overexposure to a single security or sector, thus promoting portfolio diversification. The five best performing stocks from each of the 10 sectors (excluding real estate) are selected, creating a strong and diversified portfolio.
However, as the fund rebalances its portfolio each year, these holdings may change over time.
Composition and sector weightings
SDOG follows an equal sector weighting strategy, ensuring that no single sector dominates the portfolio. This approach provides balanced exposure to all sectors, thereby reducing sector-specific risks.
Peer Comparison: SDOG and Similar ETFs
When investing in a specific ETF, it is important to compare it with similar funds to assess its relative performance. Two notable funds often compared to SDOG are the Schwab US Dividend Equity ETF™ (SCHD) and the SPDR® S&P 500 ETF Trust (TO SPY).
Over the past three years, SDOG has underperformed both, primarily due to low sector allocation to technology, which has been the big winner over the past three years. This isn’t a bad thing, it’s just something to consider.
Advantages and Disadvantages of Investing in SDOG
- High dividend yield: SDOG offers a high dividend yield (4.28%), attractive to income-oriented investors.
- Diversification: The fund’s sector-specific and equal-weighted strategy promotes portfolio diversification, reducing the risk of overexposure to a single stock or sector.
- Dividend Growth: SDOG has a consistent history of dividend growth.
- Underperformance: SDOG has underperformed the broader market (represented by SPY) and other similar ETFs like SCHD.
- Sector exclusion: The fund excludes the real estate sector, which can be a significant source of dividends.
- Volatility: SDOG has a beta close to 1, indicating that it is almost as volatile as the overall market.
Conclusion: Should You Invest in SDOG?
Investing in SDOG can be a viable strategy for investors seeking high dividend yields and consistent dividend growth. However, potential investors should be aware of the fund’s relative underperformance and market-like volatility. It should also be noted that the fund’s equal-weighting strategy may limit its exposure to the best-performing sectors or stocks.
SDOG offers a unique way to invest in high dividend stocks across various sectors of the S&P 500. If you believe in mean reversion, the S&P 500 dogs could be worth playing in the fund as a trade catch-up in 2024.
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