When it comes to DGRW and any company Buffett may be interested in, it pays to remember the importance of low debt firms with high returns on equity.
“The key phrase I’m focused on is “businesses earning good returns on equity while employing little or no debt.” I liked this phrase particularly because WisdomTree offers a series of Indexes—our “Dividend Growth” family—that employs this “Buffett factor” of return on equity (ROE) and return on assets (ROA) as a driving force for stock selection. The reason we included ROA in powering stock selection is that it penalizes the use of debt (leverage) in delivering ROE; therefore, the resulting list of companies that qualify for our Indexes tend to also employ little debt,” said WisdomTree Research Director Jeremy Schwartz in a recent note.
Low debt is trait often linked with another prized characteristic: Massive cash hoards. DGRW has that, too, as Apple (NasdaqGS: AAPL) and Microsoft (NasdaqGS: MSFT), the ETF’s second- and third-largest holdings, have two of the largest war chests in the world.
WisdomTree U.S. Dividend Growth Fund
Tom Lydon’s clients own shares of Apple. Todd Shriber owns shares of DGRW.