An ETF If You Want To Run With The ‘Dogs of the Dow’
Investing.com | Jan 07, 2022 08:17
Passive-income seekers see the start of a new year as an opportunity to participate in the "Dogs of the Dow" strategy, an approach that involves buying 10 of the highest dividend-yielding members of the Dow Jones index.
So at the start of 2022, investors who follow this strategy would buy the 10 highest yielding shares on the Dow and hold them for 12 months. Then, in 2023, they would invest in the next set of 10 and rebalance their portfolios.
This year, those top stocks are:
Dow (NYSE:DOW) — 4.82% dividend yield
International Business Machines (NYSE:IBM) — 4.81%
Verizon Communications (NYSE:VZ) — 4.75%
Chevron (NYSE:CVX) — 4.34%
Walgreens Boots Alliance (NASDAQ:WBA) — 3.55%
Merck (NYSE:MRK) — 3.54%
Amgen (NASDAQ:AMGN) — 3.45%
3M (NYSE:MMM) — 3.28%
Coca-Cola (NYSE:KO) — 2.75%
Intel (NASDAQ:INTC) — 3.58%
The strategy is a popular one. Yet, recent research suggests "there have been mixed findings on its validity." Therefore, potential investors should do further due diligence on individual names if they are interested in buying these shares in 2022.
There are no exchange-traded funds (ETFs) that specifically invest in these 10 components of the Dow 30. However, the following fund could appeal to those looking for high-yielding U.S. stocks.
h2 ALPS Sector Dividend Dogs ETF/h2
- Current Price: $54.91
- 52-Week Range: $44.80 - $56.20
- Dividend Yield: 3.55%
- Expense Ratio: 0.4% per year
The ALPS Sector Dividend Dogs ETF (NYSE:SDOG) applies the ''Dogs of the Dow Theory'' on a sector-by-sector basis. At the end of November, it identifies the five top-yielding stocks in 10 of the 11 S&P 500 sectors. But the fund excludes the real estate sector. There are no additional screens when choosing stocks.
SDOG, which has 50 holdings, tracks the S-Network Sector Dividend Dogs Index. This equal-weighted fund started trading in June 2012. The top 10 holdings account for close to 20% of net assets of $1.2 billion.
As highlighted before, in terms of sub-sectors, we see 10 sectors that each have around 10% weighting. They are: communication services, consumer discretionary, consumer staples, energy, financials, health care, information technology, industrials, materials and utilities. Understandably, some fluctuations in weighting occur during the year.
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Gold miner Newmont Goldcorp (NYSE:NEM); biopharma heavyweights Bristol-Myers Squibb (NYSE:BMY), Amgen (NASDAQ:AMGN) and AbbVie (NYSE:ABBV); telecommunications giant AT&T (NYSE:T); tech behemoths International Business Machines (NYSE:IBM); and Cisco Systems (NASDAQ:CSCO) lead the names on the roster.
Readers might be interested to know that of the 10 Dogs of the Dow mentioned, only three are not among the stocks included in SDOG. They are: Chevron, Merck and Coca-Cola. In other words, buying the fund could potentially act as a proxy for following the popular strategy in 2022.
In the past 12 months, SDOG returned 19.1%, recording a record high in early May. We like the diversity of the fund, which has exposure to 10 sectors.
These 50 stocks are currently at a discount relative to their sector peers. Thus, the value tilt is appealing in a year when the Federal Reserve is getting ready to increase interest rates.
Finally, dividend-seeking investors might want to research the following four ETFs as well:
ALPS International Sector Dividend Dogs ETF (NYSE:IDOG) — dividend yield of 3.79% and up 5.0% in the past year;
ALPS REIT Dividend Dogs ETF (NYSE:RDOG) — dividend yield of 3.01% and up 29.4% in the past year;
Invesco Dow Jones Industrial Average Dividend ETF (NYSE:DJD) — dividend yield of 2.07% and up 17.6% in the past year;
Schwab U.S. Dividend Equity ETF™ (NYSE:SCHD) — dividend yield of 2.77% and up 24.4% in the past year.
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