Despite a tough market selloff, firms paid out record numbers of dividends in 2022, offering dividend ETFs a major source of current income for their holders. While 2023 started off with a market rally, continued Fed rate hikes and the prospect of those rates holding for longer may invite investors to return to dividends en masse this year. As such, quality dividend ETFs, and their ability to diversify worldwide, could be worth considering.
Why diversify with dividends? Despite a rapidly dwindling M2 supply, the U.S. equities market is still significantly overvalued. A quality screen offers one way to find some of the more durable firms within the U.S. equities landscape, but it also may be the right time to look to burgeoning international equities and the dividends available therein, whether in international or emerging markets subcategories.
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For example, investors can look to the WisdomTree Global ex-U.S. Quality Dividend Growth Fund (DNL) to combine the two factors. Charging 42 basis points (bps), DNL launched back in 2006 and combines developed and emerging markets exposures, excluding the U.S., which also meet earnings growth and revenue standards on top of dividend income.
Tracking the WisdomTree Global ex-U.S. Quality Dividend Growth Index, DNL has returned 10.6% on a YTD basis, with some of its largest holdings including big-time foreign firms like Taiwan Semiconductor Manufacturing Co. (2330) and Novo Nordisk (NOVO.B). DNL has also seen an annual dividend yield of 4.6% per VettaFi, as well as $17 million in one-month net inflows.
For those who want more specific exposure in their quality dividend ETFs, the active WisdomTree Emerging Markets Quality Dividend Growth Fund (DGRE) offers a different approach. DGRE is approaching its ten-year mark this August and charges 32 bps for its active approach to dividend-paying EM growth-oriented stocks that meet its quality standards. Returning 6.9% YTD, DGRE has offered an annual dividend yield of 4.3%, according to VettaFi’s ETF Database.
U.S. markets may be a source of stress for advisors and investors right now, with the Fed struggling to tame inflation. Should rates remain high for a longer period of time and induce a recession, looking abroad for quality dividend ETFs to diversify portfolios may be worth a look, with DGRE and DNL options to consider.
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