Author Archives: Scalper1

SDOG: Great Yields With Reasonable Sector Allocations

Summary SDOG offers an exceptional dividend yield of 3.54%. The expense ratio is a bit too high for my tastes. The sector allocation is solid as either a first allocation or a secondary allocation in the dividend growth portfolio. Investors should be seeking to improve their risk adjusted returns. I’m a big fan of using ETFs to achieve the risk adjusted returns relative to the portfolios that a normal investor can generate for themselves after trading costs One of the funds that I’m researching is the ALPS Sector Dividend Dogs ETF (NYSEARCA: SDOG ). I’ll be performing a substantial portion of my analysis along the lines of modern portfolio theory, so my goal is to find ways to minimize costs while achieving diversification to reduce my risk level. Expenses The expense ratio is a .40%. This is too high for my tastes. Dividend Yield The dividend yield is currently running 3.54%. For the retiree or income focused investor that is looking for strong dividend yields, the yield on this fund is excellent. Holdings I put grabbed the following chart to demonstrate the weight of the top several holdings: (click to enlarge) I would ignore the very top weighting in the chart because I’m not convinced that it is a long term location. It may simply be an artifact of the time when I grabbed the chart. The individual holdings have a ton of great dividend champions. General Electric (NYSE: GE ) has been a disappointment to shareholders over the last several years, but the dividend yield is still very high and it isn’t surprising to see it included in dividend indexes. The next thing that I like to see is the presence of both Altria Group (NYSE: MO ) and Phillip Morris (NYSE: PM ). This portfolio is loading up on the sin stocks. Should we consider GameStop (NYSE: GME ) a sin stock? I think the presence of so many video games may be reducing the productivity of younger people as much as any other single factor in the economy. If we were to go all the way down the bottom of the list we would even see Freeport-McMoRan (NYSE: FCX ) on the list which is a little interesting after they had a massive dividend cut. Of course, the price also fell far enough that the dividend yield came back 1.66%. That isn’t strong, but it does represent the exceptional loss shareholders have endured. Since I’ve got some Freeport-McMoRan in my portfolio, I’m well acquainted with the pain other shareholders have endured. I’m a little surprised they aren’t making their play on BHP Billiton (NYSE: BHP ) or Rio Tinto (NYSE: RIO ) for substantially stronger dividend income if they intend to hold stocks in the mining sector as a source of dividend income. Sectors This is a great sector allocation. They went with a fairly even weighting strategy. Since I like going overweight on consumer staples and utilities, I would see this as being ideal for a secondary dividend ETF allocation in the portfolio once the investor is getting overweight on those sectors. As a secondary dividend ETF this is offering excellent sector diversification to go with the very strong yield. Even consider the fund as a first allocation, the positions are still pretty reasonable. I would prefer to use a lower allocation to the basic materials sector, but perhaps that is just the voice of an investor that has been burned by Freeport-McMoRan. For the investor that believes mining materials will have a price recovery within the next few years, this heavy allocation would be ideal. Volatility The ETF has almost perfectly matched the S&P 500 for volatility since inception. Using returns from July 2012 to the present the annualized volatility for the fund is 12.3% compared to 12.5% for the S&P 500. The max drawdown has been a little higher at 13.6% compared to 11.9%. I wonder how much of that was due to the weight of the materials sector. Conclusion This is a pretty good ETF if investors are able to look past the dividend yield. I find a couple of the choices strange for generating dividend income, but the portfolio works as a whole and the relatively even allocation looks a reasonable choice that makes it easier to slip SDOG into a portfolio that already has some major positions filled.

FVD: Great Sector Allocations For This Dividend Growth ETF

Summary FVD offers a dividend yield of 2.17%, which is fairly low for being included in the discussion of dividend ETFs. The top several holdings include heavy exposure to the major oil companies. The expense ratio is quite dreadful. The sector allocations look great for a dividend ETF, which seems ironic given the weak yield on the fund. The First Trust Value Line Dividend ETF (NYSEARCA: FVD ) looks great for sector allocations, pretty good for individual companies, and weak for yield, and painful for the expense ratio. That is one of the most mixed bags I’ve found when reviewing dividend ETFs. I’ve found ones that are good, ones that seem poorly designed, and ones that are all around average. I rarely see such strong contradicting signals though. Expenses The expense ratio is a .75% on the gross level and .70% on the net level. Is it any surprise I’m not loving the expense ratio? Dividend Yield The dividend yield is currently running 2.17%. That seems strange for a dividend ETF, but I’ve seen low yields on dividend ETFs before so I won’t dwell on it. Holdings I grabbed the following chart to demonstrate the weight of the top 10 holdings: I love seeing Exxon Mobil (NYSE: XOM ) as a top holding. Investors may be concerned about cheap gas being here to stay, but I think money in politics will be around decades (centuries?) longer than cheap gas. Bet against big oil at your own peril. I can say the same about liking Chevron (NYSE: CVX ) and ConocoPhillips (NYSE: COP ). These companies offer investors a good way to benefit from high as prices which would generally be a drag on the rest of the economy and on the personal expenditures of consumers. As we go farther down the list there are a couple of high quality equity REITs incorporated into the portfolio. I should note that while these allocations are fairly far down the list, their allocations are still higher than .58% and the second heaviest weighting is only .63%, so being far down on the list doesn’t mean much in terms of weighting. The high quality equity REITs I see here are Realty Income Corporation (NYSE: O ) and Public Storage (NYSE: PSA ). Realty Income Corporation is a monthly pay equity REIT that runs a triple net lease structure. In short, they are buying up commercial properties and renting them out to businesses. The company has exceptionally high credit standards and screens applicants to reduce their risk of having renters default on the contract. Public Storage on the other hand has a fairly simple business in terms of renting out storage space. This can be a fairly attractive space because there aren’t too many REITs competing in the space which reduces the need for price based competition. Sectors (click to enlarge) The very heavy allocation to utilities is great for investors that don’t already have the exposure in their portfolio. Utilities tend to have a lower correlation with the rest of the domestic market and generate significant income for shareholders which causes them to also have some correlation with the bond markets since investors interested in income are able to pick between bonds and utilities. The high allocation to financials is a bit higher than I’d like to see since equity REITs are only a few of the positions. Most of the financials exposure is coming from the more traditional sources such as banks. Heavy exposure to consumer staples is another positive aspect in my opinion since it makes the portfolio more resistant to selling off during negative market events. Telecommunications usually gets a much heavier weight in dividend portfolios due to the presence of AT&T (NYSE: T ) and Verizon (NYSE: VZ ), but the weighting strategy for this fund giving most equity positions allocations around .6% has resulted in those two companies combining to be only 1.14% of the portfolio. Suggestions I wouldn’t mind seeing this portfolio show a slightly higher allocation to a few dividend champions such as Pepsi (NYSE: PEP ) or Coke (NYSE: KO ). I wouldn’t mind seeing the oil companies get slightly higher allocations either. The final modification would be increasing the presence of sin companies in the portfolio by overweight companies like Altria Group (NYSE: MO ). Of course, this runs contrary to the ETF’s strategy of aiming to have their holdings be roughly equally weighted. Conclusion Overall I like the portfolio that has been created, but the weighting methodology creates the possibility of material changes in the allocation from period to period. There are several companies that were selected by the ETF’s methodology that also meet my definitions for attractive dividend payers, but I’d really like to see the strategy implemented with a lower expense ratio even if that required sacrifices such as less frequent rebalancing of the portfolio.

Wearables, 3D printers to face major upheavals soon

Big shakeouts are coming for companies competing in two emerging technology areas — wearables and 3D printers — IDC predicts. In wearables, over half of today’s players will exit the market by 2020, the research firm said. In 3D printing, the top companies in five years will be ones not yet in the market, IDC said. Those were among the predictions for 2016 and beyond made this week by IDC analysts in the firm’s annual tech industry