Despite thoughts to the contrary, not all dividend-oriented strategies are lagging the S&P 500 this year — some are easily outpacing the benchmark U.S. equity index. Enter the WisdomTree U.S. Quality Dividend Growth Fund DGRW.
Including dividends paid, the WisdomTree U.S. Quality Dividend Growth Fund is up 19.4 percent year-to-date compared to a 16.7 percent gain for the S&P 500. DGRW has also been less volatile than the S&P 500 this year. That impressive performance is enough to make DGRW CFRA Research's focus ETF for the month of November.
While many legacy dividend ETFs either focus on stocks' dividend increase streaks or weight components by yield, DGRW takes a different approach that has rewarded investors since the fund debuted 4 1/2 years ago.
Different, And That's Good
“The WisdomTree U.S. Quality Dividend Growth Index tracked by DGRW is comprised of approximately 300 dividend-paying companies with the highest combined rank of growth and quality factors,” CFRA Director of ETF & Mutual Fund Research Todd Rosenbluth said in a Wednesday note.
“The 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. DGRW is dividend-weighted and reconstituted annually to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year.”
While DGRW does not explicitly focus on an individual stock's dividend increase streak, the ETF is home to some companies with enviable track records of boosting payouts.
For example, DGRW's top 10 holdings include companies with dividend increase streaks that can be measured in decades, such as Johnson & Johnson JNJ, PepsiCo Inc. PEP and McDonald's Corp. MCD.
“Eight of the 10 largest holdings in WisdomTree US Quality Dividend ETF are CFRA Buy or Strong Buy recommendations and a similar number have Quality Rankings of A- or above,” Rosenbluth said. “These include Amgen Inc. AMGN, Home Depot Inc HD, McDonald’s and PepsiCo. DGRW also ranks favorably for the strong S&P Global credit ratings of many of these and other constituents.”
DGRW features a 22.1-percent weight to technology stocks, an important factor for the future dividend growth potential of this ETF. It's one of the largest weights to technology among all dividend ETFs. DGRW has a distribution yield of 1.38 percent. CFRA rates the ETF Overweight, the firm's highest ETF rating.
Todd Shriber owns shares of DGRW.
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