Market participants are always searching for the next catalysts for equities. Fortunately, one might be appearing in the form of a beloved, relatively safe concept: dividends.
Advisors can position client portfolios for the dividend resurgence with WisdomTree’s Global Dividend Model Portfolio, which could prove to be a solid idea at a time of impressive dividend growth.
“This model portfolio seeks to provide capital appreciation and high current income by investing in a globally diversified set of dividend and yield-oriented equity ETFs. The model strives to deliver current yield in excess of a global benchmark of equities,” according to the issuer.
The model portfolio provides ample coverage across multiple market capitalization spectrums and regions as it features large- and small-cap exchange traded funds as well international and emerging markets ETFs.
Clear Dividend Catalyst
While yields on domestic bonds remain low by historical standards, many income investors are revisiting dividend stocks and related ETFs. That faith is being rewarded with payout growth that’s being supported by robust earnings growth.
“What seems increasingly likely—perhaps regardless of these catalysts—is an acceleration in payouts to shareholders in the form of dividends and share buybacks,” says WisdomTree analyst Matt Wagner. “Earnings have rebounded to well above their pre-pandemic highs. Since the end of 2019, forward earnings on the S&P 500 are up 18%.”
Highlighting the allure of the Global Dividend Model Portfolio is that following a spate of cuts and suspensions last year, payouts still have plenty of room to run to return to pre-pandemic highs. That could be a sign the recent uptick in shareholder rewards is more a floor than a ceiling.
“Share buybacks and dividends are on the mend this year following cuts in 2020, but there is still significant ground to be made up on payouts,” adds Wagner. “Trailing 12-month share buybacks (net of share issuance) are down by nearly a third since the end of 2019. Forward estimated dividends are roughly unchanged over the same period.”
Bottom line: With interest rates low and economic growth likely to slow as the business cycle moves along, the quality and lower volatility offered by some of the ETFs in the model portfolio could provide more of a spark than investors expect.
“There are several catalysts with potential to drive the market higher, as well as both foreseeable and unforeseeable challenges,” concludes Wagner. “If we can look through the market noise, the steady return of capital via dividends and buybacks over the next several quarters and years is likely to propel markets higher—even if valuation contraction proves a modest offset.”
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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.