S-Network launches high income Sector Dividend Dogs Index

May 25th, 2012 | By | Category: ETF and Index News

S-Network Global Indexes has announced the launch of the S-Network Sector Dividend Dogs Index (SDOGX).

S-Network launches high income Sector Dividend Dogs Index

S-Network launches high income Sector Dividend Dogs Index.

The SDOGX is a portfolio of 50 higher-yielding stocks derived from the S&P 500. The SDOGX selects the five stocks in each of the ten GICS sectors that make up the S&P 500 which offer the highest dividend yields as of the last trading day of November.

Joseph LaCorte, CEO of S-Network, said:  “Sector Dividend Dogs isolates those S&P 500 constituents with the highest dividend yield in their respective sectors with the expectation that pressure exerted by investors will bring their yield into line with the overall market over the ensuing 12 months.”

The stock universe for SDOGX is the S&P 500. The S&P 500 is a leading blue chip benchmark index for the large cap component of the US stock market.

SDOGX, like the S&P 500, divides into ten GICS sectors: energy, materials, industrials, consumer discretionary, consumer staples, health care, financials, information technology, telecommunications, and utilities.  Each of the 50 constituent stocks (five from each of the ten sectors) is weighted equally, thereby ensuring diversification both across and within sectors.

Richard Phillips, Senior Index Analyst at S-Network, said: “This index provides a performance benchmark for the many investors who invest in high-dividend yield securities. The index has a high correlation to the S&P 500, while providing consistent performance since its inception.”

Unlike other high-dividend yield indexes, SDOGX does not include any qualitative screens, such as dividend growth, dividend consistency and coverage ratio.  It is based entirely on dividend yield, making it the only pure play dividend index available.

The strategy is based on similar principles to the famous ‘Dogs of the Dow’ strategy popularised by Michael Higgins in his 1991 book, Beating the Dow. The so-called ‘Dogs of the Dow’ are simply the 10 of the 30 companies in the Dow Jones Industrial Average with the highest dividend yield.

Critics of this of strategy are likely point to the lack of focus on growth and the absence of any assessment of dividend sustainability. Potentially, the high yield offered by ‘Dogs’ is merely a function of a collapsing share price. In these cases a very high dividend yield can in fact indicate a company in distress and therefore a company unlikely to be able to maintain existing dividend payments.

However, despite the potential criticism, the performance of this strategy has been impressive. The S-Network Sector Dividend Dogs Total Return Index is up 11.14% over the past 12 months, compared to an 8.54% rise in the S&P 500 Total Return Index and an 11.75% rise in the Dow Jones Select Dividend Index.

The strategy has also delivered over longer time periods. For example, over five years, the compound annual growth rate for SDOGX is 7.59%, compared to 2.01% and -0.12% for the S&P 500 Total Return Index and Dow Jones Select Dividend Index, respectively.

For investors looking to access this strategy, they may not have to wait too long. ALPS Advisors, the ETF sponsor behind the hugely successful Alerian MLP ETF (AMLP), has already licensed the index to serve as the basis for the ALPS Sector Dividend Dogs ETF to be listed on the NYSE Arca pending regulatory approval.

S-Network Sector Dividend Dogs Total Return Index

S-Network Sector Dividend Dogs Total Return Index vs. Benchmarks.

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