Dividend Paying Stocks; Always a Favorite
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A long time favorite strategy is based on seeking stocks of companies that have consistently paid and increased dividend payments over time. This is based on the premise that well established companies have a firm foundation in their respective industry and will be consistently sharing profits with its owners. Numerous mutual funds and professionally managed separate accounts use this investment philosophy as a cornerstone in business development.
Now that exchange-traded funds, or ETFs, have arrived, this same basic strategy has been applied to the creation of indexes that are used to guide portfolios that promise to offer the same type of returns as the previously mentioned counterparts have. Three such ETFs are described below.
The SPDR S&P Dividend ETF (NYSEMKT: SDY) follows this concept and is based on the S&P High Yield Dividend Aristocrats Index. The Index measures the performance of the 60 highest dividend yielding S&P Composite 1500 stocks. The component companies have instituted a policy of consistently increasing dividends every year for the past 25 years. There are 83 holdings in SDY and the largest allocation goes to Avon Products Inc., which represents 2.85% of the portfolio. SDY opened its doors on Nov of 2005 and the track record does reflect the conservative returns associated with this type of strategy. The webpage that shows all the data of SDY is https://www.spdrs.com/product/fund.seam?ticker=SDY.
The ALPS Sector Dividend Dogs ETF (NYSEMKT: SDOG) is a newcomer that was released to the general public in Jun of 2012. The Dividend Dogs or also known as The Dogs of the Dow is a simple contrarian strategy. The concept is to buy and hold the highest dividend paying stocks of the Dow Jones Industrial Average. What is implied in this strategy is that these will be the most undervalued stocks of the Dow and a reversal to positive returns is expected with a great deal of probability. SDOG however modifies this by using the S&P 500 as its universe of where to search for candidates and takes positions in 50 stocks. In comparison to the Dogs of the Dow concept, there are only 30 stocks in the DJIA and only 10 are selected. The top holding of SDOG is Frontier Communications Corp, with a position that represents 2.51% of the portfolio. Due to the recent release, it is challenging to comment on past returns and success of this ETF. All data for research is available here: http://www.alpssectordividenddogs.com/index.php
The iShares High Dividend Equity Fund (NYSEMKT: HDV) is another newcomer seeking to compete for investor capital by entering this investment theme. HDV is based on the Morningstar Dividend Yield Focus Index. The top holding is AT&T, with a position that equals 10.22% of the fund. The inception date of Mar 2011 gives a sense of some performance. HDV has not gone through full market cycles and it is hard to determine how it will hold up in weakening market conditions. Having 75 holdings in 10 sectors does give a sense of diversification. HDV is something worth watching and additional data can be found on http://us.ishares.com/product_info/fund/overview/HDV.htm.
Dividend investing has been a theme for a long time and it is quite apparent that in the ETF world there remain some solid performers and new ones are entering this area with their own variation on how to be better than the rest.
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Jeffrey L. (Jeff) Stouffer is an Investment Advisor Representative and manages the Alexandria VA office of Kingsview Asset Management. As a practicing financial advisor serving the needs of individuals and small businesses, he believes in using a wide range of investment strategies, including alternative investments. All strategies are client centric and unique. He can be reached at jeff.stouffer@kingsviewassetmanagement.com and is available to answer any questions about this combined approach.
jlstouffer has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
