Drill Down on Dividend Growth With DTD | ETF Trends

Domestic dividend growth set a torrid pace in the first quarter, extending a theme established last year and likely setting the table for more payout growth as 2022 moves along.

That’s positive news for various exchange traded funds, including the WisdomTree U.S. Total Dividend Fund (DTD).

“Dividend net changes (increases less decreases) for U.S. domestic common stocks increased $18.2 billion during Q1 2022, compared to $18.0 billion in Q4 2021, and $18.0 billion in Q1 2021,” according to S&P Dow Jones Indices.

DTD is levered to the theme of dividend growth because the $1.09 billion ETF weighs components on the basis of cash dividends. That enables the WisdomTree fund to provide investors with a quality avenue to payout growth. Additionally, DTD isn’t reliant on the yield weighting or focus on dividend increase streak methodology that are so pervasive in the world of dividend ETFs.

Still, the fund’s methodology can be a reliable gauge in terms of forecasting future payout growth, and that’s important because shareholder rewards are expected to continue climbing this year.

“Within the S&P 500, Q1 cash dividends were up 10.7% over Q1 2021, setting a record that may not last long once Q2 dividends are declared and paid,” says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “Buybacks, which set a record in Q4 2021 and are expected to set another one in Q1 2022, still appear to be favored over dividends, as the dividend payout ratio is historically low. This is expected to increase through the year, with 2022 dividends expected to post a record 2022 payment.”

DTD allocates almost 31% of its total weight to the healthcare and financial services sectors, which have been leaders in terms of S&P 500 dividend growth. Additionally, the WisdomTree fund features a 14.66% allocation to tech stocks. That sector is littered with cash-rich companies with the resources to sustain and grow payouts over time while also buying back large amounts of their own stock.

With government bond yields low and inflation still high, dividend growth remains a vital component in long-term investors’ toolboxes.

“While a consumer slowdown and a potential 2023 recession are major concerns, the shorter-term concern remains inflation, as higher payouts would need to compete with other rising rate instruments.  In the end, however, dividend investors typically weigh the risk-reward components with a bias towards secure income,” concludes Silverblatt.

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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.