Through the first month of 2022, it’s been hard to find bright spots in equity markets, particularly if investors are focusing on technology and growth stocks.
However, there is a silver lining in the form of stout dividend growth expectations in place for this year, and that could power upside for a variety of exchange traded funds, including the WisdomTree U.S. LargeCap Dividend Fund (NYSEArca: DLN).
Historically, dividend stocks, particularly the growers that DLN is fond of, outperform non-dividend payers and the broader market when markets decline. DLN is living up to that reputation, as the ETF is topping the S&P 500 by 462 basis points as of January 28.
Speaking of dividend growth, there’s already evidence suggesting that it will again be a prominent theme in 2022, as 17 S&P 500 companies boosted payouts since the start of fourth-quarter earnings season.
“Corporate America is again reporting strong cash flows as the recovery has proceeded. That means many companies can send more money back to shareholders in the form of buybacks and dividends,” reports Bob Pisani for CNBC.
Domestic dividends reached a record $511 billion last year, beating the 2020 sum by $38 billion. S&P Dow Jones Indices is estimating that the tally will surge to $541 billion as more companies lift payouts. DLN is levered to that theme because its underlying benchmark, the WisdomTree U.S. LargeCap Dividend Index, weights member firms on the basis of cash dividends paid.
DLN has more credibility as an avenue to dividend growth. The fund’s top four sector weights, which combine for over 62% of the roster, are, in order, technology, healthcare, consumer staples, and financial services.
Technology and healthcare are homes to some of the most cash-rich companies in the U.S., meaning that there’s ample runway for dividend hikes. For its part, the consumer staples sector has a storied history of steady payout increases, while the financials sector is getting its dividend groove back after the Federal Reserve signed off on elevated shareholder rewards programs last year. Plus, DLN could be a valuable inflation-fighting tool for investors.
“Companies with significant dividends, and those that are growing them, are likely to get increased attention for another reason: Dividends are a good hedge against inflation,” adds Pisani.
The $3.21 billion DLN holds nearly 300 stocks and has a distribution yield of 1.04%, according to issuer data.
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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.