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This Dividend ETF Looks Primed For A Solid 2016

January 4, 2016 9:38 am
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This Dividend ETF Looks Primed For A Solid 2016

Last year was another banner one for U.S. dividend growth, but with higher interest rates in place and more rate hikes expected, S&P 500 dividend growth is anticipated to slow in 2016.

Knowing that and following the struggles encountered by some dividend exchange-traded funds in 2015, income investors need to be selective with their dividend ETFs in 2016.

The WisdomTree Total Dividend Fund (ETF) (NYSE: DTD) is one dividend ETF to consider in the new year. Coming off a year in which it lost about 1.7 percent, a performance that was somewhat sturdy relative to some other large-cap dividend funds, DTD is more than adequately leveraged to sectors that are posting robust dividend growth and cyclical groups that historically thrive in rising interest rates environments.

Related Link: What The New Year Could Bring For A New Dividend ETF

A Closer Look At DTD

DTD offers investors solid exposure to sectors that have recently been and are expected to be dividend growth leaders in the future. Translation: DTD has comparatively high weights to consumer discretionary, financial services and technology relative to other diversified dividend funds. Those groups combine for over 42 percent of the ETF's weight.

DTD’s Allocations

“Information Technology sector dividends have grown a remarkable 270 percent since November 30, 2007. At the prior peak, this sector constituted only 5.6 percent of the Dividend Stream, whereas now it constitutes more than 13.5 percent and is the second-largest dividend-paying sector behind Financials,” said WisdomTree Research Director Jeremy Schwartz in a new note.

As for the financial services group, the second largest sector weight, that sector has reclaimed its crown as the biggest contributor of S&P 500 after losing that title during the financial crisis. Financials represent close to 16 percent of the S&P 500's dividends.

“The sector has grown its dividends more than 13 percent since last year’s screening and has averaged more than 20 percent growth since hitting bottom in 2009. Despite the impressive growth since then, the sector’s dividends are still slightly below their 2007 highs, and Financials are the only sector whose Dividend Stream remains below its 2007 highs,” added Schwartz.

DTD’s Holdings

DTD's top 10 holdings feature eight Dow components, including Apple Inc. (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and General Electric Company (NYSE: GE).

DTD’s Underlying Index

The ETF follows the WisdomTree Dividend Index (WTDI), which is a dividend-weighted index. Although the energy sector has accounted for the bulk of negative dividend action among U.S. stocks this year, the group represents 9.5 percent of DTD's weight. However, DTD's underlying index saw the addition of plenty new constituents in 2015.

“There were over 90 additions to WTDI this year, and they contributed $8.6 billion to the Dividend Stream. Despite all the additions, the total number of constituents is still slightly below last year’s and WTDI’s prerecession highs. The two largest additions were Gilead Sciences and Vereit Incorporated, contributing $2.5 billion and $497 million, respectively,” according to Schwartz.

Image Credit: Public Domain

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