The S&P High Yield Dividend Aristocrats Index recently expanded to 155 holdings after adding eight new members, all companies that have raised dividends for at least 20 consecutive years, according to S&P Dow Jones Indices.
The January reconstitution brought in six companies from the S&P 500, including Accenture (ACN), Cummins Inc. (CMI), and STERIS (STE), along with two from the S&P MidCap 400, according to the index provider. The additions highlight how two popular dividend ETFs tracking different strategies have performed over the past year.
The State Street SPDR S&P Dividend ETF (SDY), which tracks companies with 20-plus years of dividend growth, returned 10.7% year-to-date and 18.5% over one year, according to ETF Database. Meanwhile, the ALPS Sector Dividend Dogs ETF (SDOG), which selects the five highest-yielding stocks from each of 10 sectors, returned 11.1% year-to-date and 20.3% over the same period.
SDOG applies the “Dogs of the Dow” theory on a sector-by-sector basis, starting with the 500 largest U.S. stocks and selecting the highest yielders within each sector, according to ALPS. The fund equally weights 50 total holdings, with five stocks from each of the 10 sectors.
SDY takes a different path by focusing on dividend growth history rather than current yield. The index now includes 102 stocks from the S&P 500, 38 from the S&P MidCap 400, and 15 from the S&P SmallCap 600, according to S&P Dow Jones Indices. The index weights constituents by dividend yield and rebalances quarterly.
Sectors Driving Performance
The sector exposure differences between the two funds may help explain their performance gap. Energy stocks gained 19.9% year-to-date while technology fell 2.7%, according to ETF Database.
SDOG maintains roughly equal 10% weightings across all sectors, with Energy holdings at 10.06% and information technology at 9.69%, according to ALPS. This balanced approach gave the fund exposure to energy’s rally through holdings like Chevron Corp. (CVX) and ConocoPhillips (COP).
SDY carries heavier weightings in industrials at 19.5%, consumer staples at 17.5%, and utilities at 14.1%, according to State Street. The fund holds just 6.35% in information technology and 3.91% in energy.
SDOG’s energy holdings also include Kinder Morgan Inc. (KMI), Oneok Inc. (OKE), and EOG Resources Inc. (EOG), according to ALPS. In the information technology sector, the fund holds Hewlett Packard Enterprise Co. (HPE), Accenture, Texas Instruments Inc. (TXN), Microchip Technology Inc. (MCHP), and HP Inc. (HPQ).
Among SDY constituents, roughly 33% have raised dividends for 20 to 24 years, while 32% have done so for 45 years or more, according to S&P Dow Jones Indices. SDY currently yields 2.60%, while SDOG yields 4.03%.
SDY charges 0.35% in annual expenses while SDOG charges 0.36%, according to their respective fact sheets. Both funds rebalance quarterly.
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VettaFi LLC (“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, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SDOG.