Dividend Stocks Still Matter. So Does This Model Portfolio

Finding government bond yields north of 1.4% in major developed economies is difficult, meaning dividend stocks remain vital in the income-generating equation.

The Global Dividend Model Portfolio, which is part of WisdomTree’s Modern Alpha series of model portfolios, helps advisors meet clients’ income needs.

“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.

Making this model portfolio all the more relevant in the current environment is the fact that dividends remain vital to long-term returns.

“Despite dividend stocks’ lackluster showing in 2020, I’d argue they still have a solid investment case. Dividends have historically made up a significant percentage of equity-market returns, as companies that start paying dividends typically have enough excess cash flow to continue making payments year after year,” said Morningstar analyst Amy Arnott in a recent note. “Dividend programs are often thought of as a way of encouraging discipline and sound financial management, as they make it more difficult for management teams to throw money at products and strategies that may or may not pay off.”

How Global Dividends Can Help Your Own Portfolio

Dividend-paying stocks can also help insulate investors from a broad market pullback. That’s particularly true of this model portfolio’s components, which by virtue of their quality traits, tend to display less volatility in rough markets.

Dividend growth is also meaningful today because payout growers typically weather rising rates. That’s something to consider with Treasury yields climbing.

“Dividend-paying stocks tend to fare worst during more ebullient markets, such as 1995-99 and the generally strong five-year period from 2016 through 2020,” notes Arnott. “Stocks paying higher dividends also tend to underperform during periods of rising interest rates. Even so, dividend stocks have outpaced the broader market during 25 of the 41 rolling five-year periods from 1976 through 2020.”

Adding to the case for the WisdomTree model portfolio is its mix of domestic and international exposure. Ex-U.S. developed market dividend payers often feature larger yields than their U.S. counterparts, an assertion proven by comparing large- and mega-cap dividend stocks from familiar dividend sectors such as consumer staples, energy, financial services, and telecommunications.

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.