By Todd Rosenbluth, CFRA
The CFRA Focus ETF for November is WisdomTree US Quality Dividend ETF (DGRW), which earns our top ranking. CFRA combines holdings-level analysis with fund attributes, including expense ratio and bid/ask spread, to rank more than 1,000 equity ETFs.
The WisdomTree U.S. Quality Dividend Growth Index tracked by DGRW is comprised of approximately 300 dividend-paying companies with the highest combined rank of growth and quality factors. The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three-year historical averages for return on equity and return on assets. DGRW is dividend weighted and reconstituted annually to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year.
Technology (21%), health care (21%) and industrials (20%) are the largest sector exposures, while there is no exposure to real estate, telecom services and utilities stocks more widely held in high-dividend yielding ETFs. Meanwhile, there is a limited stake in financials (4%) stocks.
Johnson & Johnson (JNJ) is the largest holding for DGRW and is viewed favorably by CFRA on various metrics. Following stronger-than-expected third-quarter results, CFRA Equity Analyst Jeff Loo projects 2018 earnings per share to increase 7% to $7.78 and thinks the 4-STARS stock remains undervalued based on relative P/E analysis. Loo views JNJ as uniquely situated with unmatched depth and breadth in growing global health care markets, and with solid positions in drugs, medical devices and consumer products. Meanwhile, JNJ has an above-average S&P Global Market Intelligence Quality Ranking of A, based on a consistently strong historical earnings and dividend records. JNJ, which most recently raised its dividend 5% in April 2017, has a 2.4% dividend yield.
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Eight of the ten largest holdings in WisdomTree US Quality Dividend ETF are CFRA Buy or Strong Buy recommendations and a similar number have Quality Rankings of A- or above. These include Amgen (AMGN), Home Depot (HD), McDonald’s (MCD) and PepsiCo (PEP). DGRW also ranks favorably for the strong S&P Global credit ratings of many of these and other constituents.
Also contributing favorably to CFRA’s Overweight ranking for this ETF are bullish technical trends, as DGRW is above its 200-day moving average. Meanwhile, DGRW’s 0.28% net expense ratio and $0.01 bid/ask spread contribute favorably to the cost factors of this ETF. DGRW trades, on average, 111,000 shares per day. The ETF gathered $425 million of new money thus far in 2017 and now has $1.7 billion in assets. CFRA thinks dividend-growth oriented investors should look further at this offering.
Register for CFRA’s Mutual Fund and ETF research November 8 webinar here.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.