The potency of dividends and dividend growth in rising rate environments is not surprising because dividend growth, historically, tops inflation.
Since the early 1970s, when inflation ran as high as 11% per year, aggregate annual dividends of the S&P 500 have grown more than 1,000%, to $34.99 from $3.16 a share, Maxwell Murphy reports for the Wall Street Journal. [Fighting Rate Hikes With Dividend Growth ETFs]
There is a trade-off with DGRW in terms of yield. With no exposure to utilities or telecom stocks, DGRW’s 30-day SEC yield is just 1.92%, but that is about where 10-year Treasury yields closed Monday. However, DGRW does deliver its dividend on a monthly basis and the ETF’s largest sector weight is 20% to consumer discretionary. Discretionary is one just two sectors (financial services is the other) expected to post double-digit dividend growth this year.
“There is no question that investors have been drawn to the idea of dividend growth—potentially even more than in the past—due to a potential rise in interest rates. While there is no way to know with certainty what will happen in the future, I believe that our dividend growth methodology shows that it can help identify stocks with above-average prospects for dividend growth—as it did at the last rebalance,” adds Schwartz.
WisdomTree U.S. Dividend Growth Fund
Todd Shriber owns shares of DGRW.