There’s often an intersection between cyclical equities and dividend-paying stocks. Last year, it made for a rocky relationship, but that tide is turning for the better.
Advisors can position for a cyclical/dividend renaissance with the WisdomTree Global Dividend Model Portfolio.
“This model portfolio seeks to provide capital appreciation and high current dividend income, through a globally diversified set of WisdomTree’s dividend income oriented equity ETFs. The model strives to deliver dividend income in excess of the global benchmark of equities,” according to WisdomTree.
Cyclicals are usually found in the energy, financial services, industrial, and materials sectors. The Global Dividend Model Portfolio helps advisors capitalize on the resurgent energy sector, rebounding financial services names, and the value proposition offered by materials stock.
A Good Time to Marry Cyclicals and Dividends
Dividends are in demand as fixed-income investors face a lower-for-longer interest rate environment. The Federal Reserve is expected to maintain its near-zero interest rate policy to help push inflation up, bolster the economy, and lower the unemployment rate. The Fed has already stated it was willing to let inflation run higher to offset years inflation fell below its 2% target.
The model portfolio’s components tilt toward value and cyclical stocks, two concepts that have been soaring since early November.
“As we emerge from the pandemic shutdown in 2021, we believe investors should prepare for a more cyclical rebound with a better economic growth environment,” said WisdomTree Research Director Jeremy Schwartz in a recent note. “Just in the past few weeks, an inflection in outperformance can be seen from some of these beaten down sectors. Financials, Industrials, and Energy have had positive momentum as a result of increasing optimism for economic conditions in the year ahead.”
Data indicate professional investors are revisiting cyclical stocks, a trend that can be supported by rising dividends, economic recovery, and government spending. A prime avenue for allocating to those trends is with small caps, including the WisdomTree U.S. SmallCap Dividend Growth Fund (NasdaqGM: DGRS).
“People tend not to think of small caps for dividends, because about 50% of the Russell 2000 has typically been non-dividend payers,” notes Schwartz. “But DGRS has a considerably higher dividend yield than the S&P 500. And these dividends have not come at the expense of share dilution. For a small-cap basket this is unique, as small-cap indexes generally tend to issue shares and see negative net buyback ratios.”
For more on how to implement model portfolios, visit our Model Portfolio Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.