On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the ALPS Sector Dividend Dogs ETF (SDOG) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF overall.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week!

Welcome to the ETF of the Week, where we examine trending new newsworthy, unique and intriguing exchange traded funds with Todd Rosenbluth, the head of research at VettaFi. And at VettaFi.com, you’ll find all the tools and research you need to be a savvy, smart investor in ETFs.

Todd Rosenbluth, it’s great to chat with you again.

Todd Rosenbluth: Happy July-4th-to-be to you, Chuck.

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The ALPS Sector Dividend Dogs ETF. SDOG.

Chuck Jaffe: SDOG. ALPS Sector Dividend Dogs. “Did that dog just say hi there?”

That dog did just say hi there! Why is it saying hi there to us this week, Todd?

Todd Rosenbluth: Listen, it’s July 4th. We celebrate America. We celebrate American companies. I also, when I think of America, you always hear about the underdog, and rooting for the underdog. That’s what’s SDOG is. SDOG is a collection of 50 large-cap U.S. stocks that have underperformed in the past year. So, their dividend yield is the highest within their respective sector.

It’s worth rooting for. It’s worth having within your portfolio and getting a certainly very strong yield as well.

Chuck Jaffe: And the yield is a big part of it. I mean, this is a fund that, last time I checked, was yielding about 4%. You’re talking about large-cap value. At the same time, there are plenty of people who are worried about the status of dividend stocks. Our friends on Money Life from New Constructs recently did a whole bunch of stuff where they were looking at what they called fake dividends and false dividends and dividend traps.

And the moral of the story was that there are a lot of dividend stocks that aren’t quite what they’re cracked up to be. You’re leaning into that with this. So, do you worry that, you know, you’re buying dogs, hoping for good behavior, but that you might get bitten?

Todd Rosenbluth: Well, you certainly might. Wow, that was a good one. I couldn’t catch myself beforehand. You certainly could. But that’s, again, the benefits of an ETF with 50 stocks and diversification. You’re limiting the risk of a dividend cut. You’re right, the yield is 4%. This is not a super dividend yield, where the dividend yields are 8-9-10%, where the dividend is as likely to be at risk.

I’d encourage the audience to take a closer look at what is inside the portfolio. Look at the stocks. And what you’ll find is five stocks across ten different sectors. So every sector that you find within the marketplace, excluding real estate. Real estate has its own dividend or dividend dog efforts. And so, in technology, for example, you’re finding Cisco and IBM.

I’m not going to put on my stock hat and tell you that I have 100% confidence that the dividend is secure for each of those companies, but I think they’re in pretty good shape based on what it is that I know in financials. For example, you’re going to get a company like KeyCorp. You surely want to look at the holdings.

But this is diversified not only across the 50 stocks, but also and 50 again, why not 50 with the 50 states? I didn’t even plan on that one.

But that’s how it works also for it, but equally weighted. So, each of the stocks is 2% of the portfolio at the time of the rebalance. There’ll be some movements of something, maybe 2.1% or 2.2& versus 1.8% or 1.9% here, but you’re getting that diversification.

So you’re not [at]risk of one company cutting their dividend and it having a disproportionately negative impact on your portfolio.

Chuck Jaffe: And this does give you some diversification. This is not like any of the picks that we’ve talked about, where we’re looking, going “how much Mag Seven do they have, et cetera,” because those are not the inhabitants here. And again, even if they were under equal weighting, they’d only be 2% of the portfolio. So, that’s the nice part about this.

At the same time, I mean, when you talk about how somebody evaluates a fund, you turn to what people are going to see from Morningstar. There would be folks that would look at this and go, this is a two-star fund. So you have to have some confidence. And by the way, it’s not only a two-star fund, it’s a fund that as we record this, which is a little ahead of the July 4th holiday, it’s below its 200-day moving average.

Again, it’s on the rise and it may be there by the time this airs, but how do you get somebody over the hump of, “Those things make me nervous”?

Todd Rosenbluth: So I will look at the performance this year. And as we’re recording this on on June 23, I am going to say the date. We don’t normally do that, but — so we’re far enough in advance for this. It’s up 2.5%. That’s in line with the broader market, I believe, but with an above average dividend yield. So, you’re buying this in part for the upside potential of those individual stocks, and a reversion to the meme stocks have sold off or might come back.

These are large-cap, relatively high quality companies that are among the 500 largest companies overall. This is a value play. This is a, you know, not a growth at a reasonable price, but a value play, where the dividend is competitive and exciting. This rebalances on an annual basis. So, what is inside the portfolio today certainly is different than it was a year ago.

And this is run by a VettaFi index. I’ll disclose that. But that’s not why I’m picking it. I’m picking it because it’s providing you the diversification and can add on to an otherwise diversified portfolio, but giving you a higher income component.

Chuck Jaffe: And generally, do you like dividend dog strategies, which, you know, it’s buy the highest yielding stock and rebalance periodically. There’s the Dogs of the Dow, is what it’s sort of famously known for. This is a twist on that. But have you been a fan of Dividend Dogs strategies over the long history that, you know, we’ve been able to now track them?

Todd Rosenbluth: So, I love simplicity. I know a lot of this — some of the strategies we’ll end up talking about are not simple. But this is simple, and it works. It historically has worked. You’re right. It’s based on the Dogs of the Dow theory that many years ago, when I was a financial advisor, I remember learning about and being educated about the merits of that reversion to the mean.

That’s what this is based on. But you get the broader diversification across sectors. So, it’s equally weighted at the stock level. It’s equally weighted at the sector level. You talked about Mag Seven earlier. This is only 10% technology. It’s 10% utilities also. So you’re balancing that out. I think this is a simple strategy that has worked over time.

And I think it’s worth people taking a closer look at, as they’re celebrating America and celebrating American companies.

Chuck Jaffe: Yeah. It won’t necessarily lead to fireworks in your portfolio, but you also aren’t likely to get burned by it. It’s the ALPS Sector Dividend Dogs ETF, ticker SDOG. The ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff as always. Happy holidays! We’ll talk to you again next week!

Todd Rosenbluth: Happy holidays to you and to your dog that is sometimes behind us when we’re doing these conversations!

Chuck Jaffe: Yes! Not today, but we love it when he’s here! The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I am Chuck Jaffe. And I’d love it if you check out my show and maybe my dog, by going on MoneyLifeShow.com or by searching for it wherever you find your favorite podcasts.

If you’re searching for more information on your favorite ETFs, maybe the ones that will be your favorites after you learn about them, go to VettaFi.com, where they’ve got all the tools you need to help yourself and your portfolio. They’re on X at @Vetta_Fi. Todd Rosenbluth, their Head of Research, my guest here for the ETF of the Week, he’s on X as well at @ToddRosenbluth.

And the ETF of the Week is here for you every week. So make sure you don’t miss an episode by following along on your favorite podcast. We’ll be back next week with another great ETF for you to consider. Until then, enjoy the holiday weekend! Go America! Happy investing everybody!

VettaFi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for SDOG, for which it receives an index licensing fee. However, SDOG is not issued, sponsored, endorsed, or sold by VettaFi. VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SDOG.

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