Dividend stocks and related ETFs lagged the broader market last year. Growth equities carried the day. However, payout growth remained stout. Many market observers are wagering that dividend stocks could be in style this year.
That could play well for ETFs such as the WisdomTree U.S. LargeCap Dividend Fund (DLN). The $3.69 billion fund follows the WisdomTree U.S. LargeCap Dividend Index. It trailed the S&P 500 last year. But one year doesn’t tell the story of any dividend ETF. DLN’s long-term track record is enviable. Over the past three years, it’s topped the S&P 500 while delivering 350 basis points less in annualized volatility.
For investors who want near-term positivity from DLN, it’s a possibility. That’s particularly so if the Federal Reserve lowers interest rates multiple times this year. That said, DLN isn’t heavily allocated to sectors inversely correlated to interest rates.
Dividends Fund DLN Has Long-Term Allure
Market participants willing to embrace DLN on a long-term basis, which is advisable with dividend strategies, could find a lot to like with this ETF. The fund turns 18 years old in June. That confirms it’s battle-tested across a variety of market settings.
Additionally, dividends have accounted for significant percentages of portfolio returns over lengthy holding periods. By embracing a passive strategy such as DLN, investors don’t need to worry about stock-picking. And they can amplify the power of compounding. That’s because, unlike many rivals in this category, DLN delivers monthly payouts.
“Dividend-paying stocks can also provide a cushion during market downturns, as the income from dividends can help offset potential losses in the stock price,” according to Morningstar. “However, it’s important to note that not all companies pay dividends, and dividend payments are not guaranteed. Investors should carefully consider their investment goals, risk tolerance, and the financial health of the company before investing in dividend-paying stocks.”
Another point in DLN’s favor is that, while the ETF doesn’t rely on companies’ past dividend behavior as a predictor of future increases, the fund’s methodology embodies some of the hallmarks of reliable dividend raisers.
“The financial indicators for evaluating companies for solid dividends include an economic moat, a history of increasing dividend payments, positive consensus earnings forecasts, reasonable payout ratios, and a high dividend yield. Companies with wide economic moats are more likely to maintain their dividends during recessions,” added Morningstar.
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