Figure 2: WisdomTree Dividend Index (WTDI) Historical Trends
• Record Number of Additions: There were 140 additions to WTDI this year, and they contributed $11.1 billion to the Dividend Stream. This year’s rebalance saw the largest number of additions to the index, since WTDI inception, but the total number of constituents is still below its pre-recession highs. On the other hand, the percentage of market cap that the WTDI Index constitutes within the Russell 3000 Index has surpassed previous highs.
• Dividend-Paying Market Cap Surpasses Previous High: Looking at the WTDI market cap as a percentage of the Russell 3000 Index market cap gives us an approximate percentage of dividend payers by market capitalization. As a result of the great recession, the percentage declined from approximately 78% to 70% as companies were suspending dividends to shore up cash. Since then, profitability has increased and companies have been reinstating or initiating dividends in order to return more cash to shareholders, as witnessed by the increase from 70% back to 78%. It is important to note that the Russell 3000 Index and WTDI have different methodologies and not all securities are represented in each index, so the actual dividend-paying market cap of the Russell 3000 Index may be different.
Importance of Incorporating a Relative Rebalance
The WisdomTree annual rebalance is a key element of the added value of WisdomTree’s Index methodology and can help manage valuation risks. With market capitalization-weighted indexes, when constituents increase in price compared to other stocks, they gain greater weight and increase their impact on the performance of the index. WisdomTree Indexes use dividend growth as a key factor in determining which companies get increased weight at a rebalance. We interpret another year of double-digit dividend growth as a very positive indicator of underlying market fundamentals and believe it helps provide a notable foundation for potential future gains.
1Each calendar year mentioned refers to the November 30 screening date for that specific year.
Important Risks Related to this Article
Dividends are not guaranteed and a company’s future abilities to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.