This ETF takes a unique approach by selecting five holdings from each of the ten sectors within the S&P 500 Index with the highest dividend yields, explains David Fabian, of FMD Capital Management.

Each holding is then equal weighted so that every company has a similar pull on the total return of the fund. The end result is a portfolio of 50 large-cap stocks that includes a high degree of diversification among every S&P sector.

The ALPS Sector Dividend Dogs ETF (SDOG) was introduced just over two years ago and has since amassed over $800 million in total assets.

Often times, dividend funds are skewed towards a specific area of the market such as utilities, consumer staples, or energy companies.

However, SDOG provides you with the opportunity to own equal segments of the economy in one single package. In addition, because they select from some of the largest and most liquid stocks in the world, the holdings are generally high quality companies.

SDOG has a current 30-day SEC yield of 3.32%; the fund has an expense ratio of 0.40%. This ETF has returned nearly 25% over the last 52-weeks with dividends factored back in.

This outperformance in SDOG is likely due to larger exposure to technology, healthcare, and telecommunications sectors, which have performed strongly over that timeframe.

The one drawback to this strategy that I find less appealing is that dividends are paid on a quarterly basis. I typically prefer equity income funds that offer monthly dividends to smooth out the payment stream and allow for greater frequency of distributions.

Nevertheless, SDOG should certainly be on your watch list of dividend paying ETFs that include a reasonable expense ratio, higher than average yield, and unique index construction methodology.

This fund can certainly be used as a core holding within the context of a conservative income portfolio to gain market correlation and yield.

The original Dogs of the Dow strategy focuses on selecting ten of the highest dividend paying stocks in the Dow Jones Industrial Average on an annual basis. SDOG does an admirable job of taking that one step farther to include a more diversified and balanced subset of companies.

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