Apple Tops New WisdomTree Dividend ETF
Apple's (NASDAQ: AAPL) new status as a dividend stock is, no pun intended, bearing fruit. At least at the new ETF level.
The WisdomTree U.S. Dividend Growth Fund (NASDAQ: DGRW), which debuted today, features the iPad maker as its largest holding with a weight of 4.71 percent.
Aside from making for good headlines, such as the one on this article, Apple's ascent to the top of any dividend ETF is a sign of a growing theme in the dividend ETF space. That being the move toward those funds that focus on weighting metrics beyond length of dividend increase streaks.
"Investors are hungry for income in this low interest rate, low yield environment," said WisdomTree Research Director Jeremy Schwartz in a statement. "Rather than relying on historical records of dividend increases, DGRW uses real-time growth and quality metrics focused on companies who are growing their dividends."
Part of the focus on stocks that are showing favorable dividend growth going forward includes the WisdomTree U.S. Dividend Growth Fund allocating over 20 percent of its weight to the technology sector, the sector currently leading the market's dividend growth. Other tech names featured among the new ETF's top-10 holdings include Dow components Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC).
To be sure, DGRW does not eschew traditional dividend sectors and stocks. For example, consumer staples, often viewed as nirvana for income investors, is the new ETF's fourth-largest sector weight with an allocation of almost 19.5 percent. Five staples names – Wal-Mart (NYSE: WMT), Procter & Gamble (NYSE: PG), Coca-Cola (NYSE: KO), Altria (NYSE: MO) and PepsiCo (NYSE: PEP) – are found among DGRW's top-10 holdings.
DGRW, which features an annual expense ratio of 0.28 percent, also allocates nearly percent of its to both consumer discretionary and industrials names. Health care, financial services and energy stocks combine for about 16 percent of the fund's weight, according to WisdomTree data.
With the dividend ETF space gaining new members on what feels like an almost weekly basis, those new funds need to do something to standout from already established names that, in some cases, control billions of dollars in assets. DGRW has standout potential due to its index's "secret sauce."
Actually, it is not a secret. The WisdomTree U.S. Dividend Growth Index focuses on growth and quality factors.
"The he growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three year historical averages for return on equity and return on assets. The Index is dividend weighted annually to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year, based on the most recently declared dividend per share," according to Wisdom Tree.
Said another way, dividend increase streaks are nice, but that metric is backward-looking.
"We believe the key drivers of dividend growth are constantly changing. And a number of dividend-based indexes – through restrictive inclusion screens based on patterns of historical dividend trends – may miss out on what we see as dividend growth opportunities in today's market," Schwartz said in the statement.
For more on dividend ETFs, click here.
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