Eric Dutram: ALPS, the small ETF issuer best known for its commodity products, appears to be continuing its expansion in the U.S. sector market with its newest fund. The brand new product, the Sector Dividend Dogs ETF (NYSEARCA:SDOG), looks to provide exposure to 50 firms that are among the highest yielders in the U.S. market, potentially giving investors another option for current income in today’s yield starved environment.
This looks to be done by tracking the S-Network Sector Dividend Dogs Index which is a benchmark of U.S. large cap equities that have above average dividend yields. This index uses a fresh take on the ‘Dogs of the Dow Theory’ in which investors annually select the ten DJIA stocks that have the highest yields at the start of every calendar year (read 11 Great Dividend ETFs).
ALPS uses this idea and expands upon it with SDOG, going beyond the 30 Dow stocks and into the broad S&P 500 instead. In this approach, the index takes the top five dividend yielders in each of the ten S&P 500 sectors for inclusion in the final fund.
For this service, the product does charge investors 40 basis points a year in fees. While this is in line with many other dividend focused ETFs in the market, this is a bit higher than many other broad ETFs like those tracking the S&P 500 index (see Inside The SuperDividend ETF).
Investors should also note that the product uses an equal weight methodology both in terms of individual securities and sectors. As a result, each company takes up about 2% of the total while each of the sectors has a roughly 10% weighting.
For those who are curious as to some of the holdings in the product, it is definitely tilted towards large caps, although some medium size firms also find their way into the fund as well. Some of the more famous constituents include Chevron (NYSE:CVX), AT&T (NYSE:T)- Analyst Report), Intel (NASDAQ:INTC), Johnson & Johnson (NYSE:JNJ), and DuPont (NYSE:DD), just to name a few.
In terms of investment metrics, many of the most important ratios are favorable for SDOG’s index when comparing them to the broad S&P 500. According to ALPS, the yield on the index is approaching 5% while the S&P 500 has one of just over 2%. However, the PE for SDOG’s index is slightly higher than the S&P 500, although Price/Cash Flow, Price/Book, and Price/Sales are all in SDOG’s favor (read Invest Like The One Percent with These Three ETFs).
While SDOG may have some favorable metrics, the ETF will be facing some stiff competition for assets in the dividend-focused ETF market. Two of the most popular products in the space, theSPDR S&P Dividend ETF (NYSEARCA:SDY) and the PowerShares High Yield Equity Dividend Achievers ETF (NYSEARCA:PEY), both have robust daily trading volume levels and a great deal of assets under management.
While both of these products have a big head start in terms of assets and volume, investors should note that SDOG looks to beat out both in terms of yield. According to issuer websites, SDY pays out roughly 3.3% while PEY has a 4.2% yield, meaning that both pale in comparison to SDOG’s nearly five percent payout (seeHealth Care ETFs in Focus on Obamacare Supreme Court Decision).
Given this higher yield, some investors may be able to shake off the worries over wider bid ask spreads and the low volume and give SDOG a shot. ALPS has had mixed luck so far with its products—some have been huge winners while others have failed to catch on—so it will be interesting to see which way SDOG goes in the months ahead and if investors are ready and willing to apply a ‘Dogs of the Dow’ approach to the S&P 500.
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