Durability is the name of the game when it comes to dividend investing and that concept has rarely been more important than it is this year as investors are enduring a spate of negative dividend action.
Advisors can keep investors from that negativity with bespoke strategies, such as the Global Dividend Model Portfolio, which is part of WisdomTree’s Modern Alpha group of model portfolios.
“This model portfolio seeks to provide capital appreciation and high current dividend income, through a globally diversified set of WisdomTree’s dividend income oriented equity ETFs. The model strives to deliver dividend income in excess of the global benchmark of equities,” according to WisdomTree.
Many of the nine ETFs featured in the Global Dividend Model Portfolio qualify as quality dividend strategies. That’s vital for long-term clients. Dividends have been a historical driver of overall returns for investors. Looking at the Russell 1000 benchmark, dividends have contributed to 2.76% of the index’s total return since its inception. While investors can still augment their portfolio through dividends, it is also important to be selective in a bid to focus on areas of strength.
Quality Matters
Quality should not be conflated with low volatility, but there are times when quality stocks display low volatility traits. That was the case during the fourth quarter of last year’s market swoon, indicating that the quality factor can provide some protection during times of elevated market stress. The quality factor is increasingly relevant for dividend investors today.
“It’s tempting for investors striving to live off their portfolios in the current interest-rate environment to consider dividend-paying stocks as bond replacements,” according to Morningstar. “While equities have historically been 4 to 5 times more volatile and lack the protection afforded fixed-income securities in the capital structure, their yields offer an enticing alternative.”
Holdings in the Global Dividend Model Portfolio, generally speaking, aren’t high-yield plays, but the portfolio’s aggregate dividend yield exceeds that of the S&P 500, making it a compelling idea for advisors looking for ideas to present to income-starved clients.
“Stock yields are lower now than at the end of the financial crisis, but they’re better than 10-Year Treasuries and competitive with corporate bonds,” notes Morningstar. “In fact, the relative advantage of the S&P 500 hit a more than 20-year high in July, when its 1.96% projected one-year yield was about 3.6 times the 10-Year Treasury’s 0.55% yield and edged the Bloomberg Barclays U.S. Corporate Bond Index’s 1.91%.”
For more on how to implement model portfolios, visit our Model Portfolio Channel.
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.
