As has been widely documented, 2020 has been unkind to dividend investors with the S&P 500 being home to rampant cutting and payout suspensions in the first half of the year.
Some strategies steer investors away from that negativity, including the Global Dividend Model Portfolio, which is part of WisdomTree’s Modern Alpha group of model portfolios.
With the dividend picture starting to incrementally brighten, the Global Dividend Model Portfolio is even more relevant for advisors looking for quality income ideas for client portfolios.
“What’s more, some of the companies that are reinstating quarterly payouts are doing so at reduced levels,” reports Lawrence Strauss for Barron’s. “Nevertheless, the reinstatements potentially signal that the pressure on payouts earlier in the pandemic is easing in certain sectors.”
Dependable Dividends
Reinstatements are nice, even when the payouts come back at lower levels than before, but avoid negative dividend action is the preferred strategy. Advisors can put the dependability odds on clients’ sides with the WisdomTree Total Dividend Fund (NYSEArca: DTD), one of the funds found in the Global Dividend Model Portfolio.
DTD “seeks to track the price and yield performance, before fees and expenses, of the WisdomTree U.S. Dividend Index, which is one of the most inclusive indexes of all dividend payers in the U.S. The dividend-weighting mechanism emphasizes the total size of dividend distributions,” according to WisdomTree.
Additionally, dividend-paying stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return. While many dividend ETFs focus on yield, DTD is a more forward-looking strategy because it emphasizes paid dividends.
“Still, there are other signs that dividend health is improving besides the recent reinstatements. In August, for example, 13 companies in the S&P 500 index declared dividend increases against two that announced cuts, according to S&P Dow Jones Indices,” reports Barron’s.
Even with reinstatements, DTD matters because many of its components are maintaining payout growth this year and that’s vital for long-term investors.
Over the past 40 years, companies that boost payouts have proven to be less volatile than their counterparts that cut, suspended, or did not initiate or raise dividends, potentially making it an ideal fund for volatile market environments.
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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.
