Dividend growth in the technology sector is still a relatively new phenomenon. However, buoyed by some of the largest cash hoards in the world, some of the biggest U.S. technology companies have not been shy about bolstering their payouts in recent years.
In 2014, the average dividend increase from Apple (NasdaqGS: AAPL), IBM (NYSE: IBM), Cisco (NasdaqGS: CSCO) and Qualcomm (NasdaqGS: QCOM) was 14%. The issue is finding large concentrations of the most impressive tech dividend growers, notably Apple and Microsoft (NasdaqGS: MSFT), in traditional dividend ETFs because many of those ETFs have dividend increase streak requirements of 10 years, 20 years or more that new dividend payers from the tech sector cannot yet fulfill.
The WisdomTree U.S. Dividend Growth Fund (NasdaqGM: DGRW) does not have that problem and with an Apple allocation of nearly 5%, the fund has one of the largest weights to the iPad maker among all dividend ETFs. [Dividend Growth ETF Shows its Mettle]
“It depends if your dividend ETF tracks an index that weights BY dividends or one that weights FOR dividends. For example, the NASDAQ U.S. Dividend Achievers Select Index is a popular dividend growth index that requires 10 consecutive years of continual dividend growth to qualify for inclusion. However, the WisdomTree U.S. Dividend Growth Index (WTDGI) does not have such a requirement. Why does this matter? Because we believe that dividend indexes with backward-looking growth screens may end up excluding some of the faster growing new dividend payers that may not have 10-year histories of dividend payments, much less dividend growth,” said WisdomTree Research Director Jeremy Schwartz in a new research note.
What that means is that despite its recent, stellar dividend growth, Apple will not be finding its way into some of investors’ favorite dividend ETFs until 2023 or later.
Apple brought back its cash dividend in the third quarter of 2012 and since then, the company “has raised its annual dividend a cumulative 25% to $1.88, paying 47 cents per quarter for each of the last four quarters,” according to Schwartz. Earlier this week, Apple, which has $178 billion in cash, said it will sell $6.5 billion of high-grade corporate debt to, in part, fund more buybacks and dividends. [Apple Finally Joins Buyback ETF]
DGRW offers exposure, albeit modest, to another stock excluded by dividend increase streak ETFs that has already shown a penchant for payout growth although it is a relatively new dividend payer. DGRW has a 10.6% weight to health care stocks, including a 1.2% weight to Amgen (NasdaqGS: AMGN).
In the third quarter of 2011, Amgen paid its first cash dividend. The payout has since more than doubled while the stock has nearly tripled. Because it does not weight by dividend increase streak or yield, DGRW has the flexibility to include Amgen, just it could eventually include Gilead Sciences (NasdaqGS: GILD), which announced a new dividend of $1.72 per share per year Tuesday. [Gilead Could Goose Biotech ETFs]
WisdomTree U.S. Dividend Growth Fund
Tom Lydon’s clients own shares of Apple. Todd Shriber owns shares of DGRW.