Did You Own A Dividend ETF In The First Quarter?
Late last year, dividend stocks and the corresponding exchange-traded funds were being left for dead as investors anticipated the Federal Reserve would follow up its December interest rate hike with at least four more rate hikes in 2016.
Nearly four months into 2016, there has not been a single rate hike, markets widely anticipate there will be just two, at the most, this year and dividend ETFs have regained plenty of momentum. In addition to the Fed's reluctance to raise borrowing costs, there are other reasons why dividend ETFs are back in style this year, including investors rediscovering their affinity for value stocks.
Delving deeper into the currently outperforming world of dividend ETFs, investors should note that those funds that are weighted by, well, dividends are doing particularly well this year.
How Have Dividend ETFs Been Performing?
“The excess returns were significant. The WisdomTree Dividend Index, which measures the performance of more than 1,400 U.S. dividend-paying stocks, beat the Russell 3000 Index by 337 basis points (bps) in Q1,” said WisdomTree Chief Investment Officer Luciano Siracusano in a recent note.
The WisdomTree Total Dividend Fund (ETF) (NYSE: DTD) is the ETF that follows the WisdomTree Dividend Index. Year-to-date, including dividends paid, DTD is up 3.3 percent, or more than quadruple the returns offered by the S&P 500.
Focus In On DTD
Energy stocks, often of the two largest sector allocations in many value ETFs, represent DTD's seventh-largest sector weight at 9.6 percent. However, financial services names, another large presence in value ETFs, are DTD's largest sector weight at 17.8 percent. So it can be argued that DTD does have something of a value tilt and that is alright.
“First, value stocks reversed a multi-year trend and trumped growth stocks in Q1. Value stocks across the board, as measured by the value indexes highlighted above, outperformed the beta benchmark in their respective size categories. When value stocks beat growth stocks, a tailwind can be created for dividend-weighted indexes, as they tend to tilt toward relative value,” added Siracusano.
The 300 stocks in DTD's underlying index are dividend-weighted. That index yields 3.23 percent, or nearly double Friday's closing yield on 10-year Treasurys. DTD's top 10 holdings, which combine for 22 percent of the ETF's weight, include Dow components Exxon Mobil Corporation (NYSE: XOM), Verizon Communications Inc. (NYSE: VZ) and Apple Inc. (NASDAQ: AAPL).
DTD is also an alluring idea for long-term dividend investors. Over the past five years, the WisdomTree Dividend Index has topped the Russell 3000 Value Index by 220 basis points, according to WisdomTree data.
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