- A look at "dividend dogs" ETFs.
- The strategy behind the dividend dogs ETFs.
- International and U.S. dividend dog ETFs.
By Todd Shriber & Tom Lydon
The ALPS Sector Dividend Dogs ETF (NYSEARCA:SDOG) will soon celebrate its second anniversary, but it is accurate to call this dividend ETF a success.
Nearly $721 million in assets under management, a two-year return north of 45% and the ETF hitting a new all-time high Tuesday confirm SDOG's success. There is good news for investors that want to apply SDOG's to global dividend stocks.
The ALPS International Sector Dividend Dogs ETF (NYSEARCA:IDOG) is nearly a year old and has also proven successful out of the gate.
As is seen in both SDOG and IDOG, ALPS identifies the five highest-yielding securities in the 10 GICS sectors on the last trading day of November. From there, IDOG is rebalanced quarterly in an effort to keep sector weights in the area of 10% and individual holdings at around 2%.
However, IDOG is not simply driven by yield.
"Simple yield-based dividend indices tend to have risky concentrations that can diminish the original benefits of indexing, while indices based on dividend growth and size may be better diversified but often lack the income producing qualities investors expect," notes AltaVista Research.
While many dividend ETFs focus on backward-looking methodologies, IDOG's country allocations indicate the ETF is significantly leveraged to credible international sources of future dividend growth.
At the end of the first quarter, the ETF devoted almost 40% of its combined weight to Japan, Australia and the U.K. Although Japan is not yet a prime developed market dividend destination, some market observers see that changing in the future as cash-rich Japanese companies look to increase shareholder rewards.
In 2013, the U.K. was the second-largest developed market dividend payer in dollar terms after the U.S. while Australian companies paid $40.3 billion in dividends last year, nearly double the amount paid in 2013.
"Both a backward-looking performance review and a forward-looking fundamental analysis of the underlying constituents suggest that, like its domestically-focused counterpart, the International Sector Dividend Dogs Index is worthy of investors' consideration," said AltaVista.
Although IDOG's holdings are not particularly high yielding, the ETF's underlying index yield is noticeably higher than the MSCI EAFE Index. Since coming to market, IDOG has outpaced traditional EAFE index ETFs by considerable margins.
"The hybrid strategy followed by the International Sector Dividend Dogs index overcomes the drawbacks of these other two strategies by combining yield-based security selection with an equal sector weight overlay. The result is a well-diversified index with potentially enhanced yield and value characteristics. Such diversification is critical with income-oriented investments since high yields can be a sign of distress, the consequences of which proved devastating during the financial crisis of 2008-09," added AltaVista.
IDOG Country Allocations