In January, Dividends Were Dynamic | ETF Trends

January 2022 won’t go down as one of the best first months of the year for stocks. It was actually one of the worst, but dividend stocks and exchange traded funds proved their mettle.

Take the case of the WisdomTree U.S. LargeCap Dividend Fund (NYSEArca: DLN). One of the more venerable dividend ETFs in the category, DLN is outperforming the S&P 500 by 470 basis points year-to-date.

That’s a strong indication that dividends are durable when the broader market falters, but there’s more to the story. DLN has multiple tailwinds for investors to consider in 2022.

“Within the S&P 500, the highest dividend yield companies have outperformed the lowest yield companies by a whopping 933 basis points (bps) this year. That margin is even greater—1,017 bps—when compared to the roughly 100 S&P 500 companies that don’t pay a dividend,” says WisdomTree research associate Matt Wagner. “According to Howard Silverblatt of S&P Dow Jones Indices, S&P 500 dividend-payers outperformed non-payers in January by the greatest monthly performance spread (6.58%) since July 2004.”

Barely more than a month into 2022, dividend payers are already providing tangible differences for investors. As Wagner notes, nine of the top 10 S&P 500 stocks in January were dividend-payers, while eight of the 10 worst were not dividend-payers.

DLN allocates 16.6% of its weight to tech stocks, and within that sector, it’s the dividend-payers that are holding up better to start 2022 than their unprofitable, non-dividend counterparts. Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) are two of the leaders in terms of payout growth within tech, and those names are DLN’s top holdings, combining for 8.3% of the fund’s roster.

The prodigious amounts of cash those companies generate seemingly every quarter, coupled with their status as two of the most dependable dividend growers on the market, bolster DLN’s credibility as an inflation-fighting vehicle for investors in 2022.

“As we have written recently, we believe investors should continue favoring dividend-paying equities in this environment of high inflation and negative real yields from fixed income,” concludes Wagner. “Value generally, and the dividend-yield factor specifically, have been challenged for most of the past 15 years relative to growth. We believe the rotation that has occurred over the past several months is just the beginning of a longer-run mean reversion in favor of value/dividends.”

DLN holds nearly 300 stocks and sports a distribution yield of 1.01%.

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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.