The Dividend Growth Formula: WisdomTree’s Buffett Factor Approach
WisdomTree offers a series of Funds—our “Dividend Growth” family—that employs ROE and 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 companies that qualify for our Dividend Growth Funds tend to also employ little debt.
At WisdomTree, we believe that focusing on quality factors, such as high profitability and low leverage, through rules-based processes can be a compelling investment strategy over the long term. We also believe that these are common traits among firms that consistently grow their dividends and have a high potential to increase their dividends in the future. These high-quality, dividend-growing small caps are also selling at attractive valuations compared to broad based small caps, which we think creates a timely opportunity.
1The annual shareholder letter for Berkshire Hathaway, Inc., available here.
2Scott Patterson and Douglas A. Blackmon, “Buffett Bets Big on Railroad,” The Wall Street Journal, 11/4/09.
3Anthony Bianco, “Homespun Wisdom from the ‘Oracle of Omaha,’” Businessweek, 7/5/99.
4The annual shareholder letter for Berkshire Hathaway, Inc., available here.
Important Risks Related to this Article
Diversification does not eliminate the risk of experiencing investment losses.
There are risks associated with investing, including possible loss of principal. Funds focusing their investments on certain sectors and/or smaller companies increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. Dividends are not guaranteed and a company currently paying dividends may cease paying dividends at any time. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.