Interest rates are rising, and there’s more to come. There’s no denying that. There’s also no denying that government bond yields remain low.
As a result, there’s ample interest among income investors in dividend stocks and the related exchange traded funds, including the WisdomTree U.S. High Dividend Fund (NYSEArca: DHS). Home to north of $1 billion in assets under management, DHS sports a distribution yield of 1.76%. That’s well in excess of the dividend yield on the S&P 500, but low enough to imply ample room for payout growth.
A new CNBC Delivering Alpha investor survey indicates that nearly a third of the professional investors polled said that high-dividend stocks are the class they’re most likely to buy today.
“Investors are facing uncertainty from the Federal Reserve’s rate hiking cycle, record high inflation and a war between Russia and Ukraine,” report Maggie Fitzgerald and Patricia Martell for CNBC. “Dividend stocks are a great way for investors to generate income during the time of uncertainty. A dividend is a portion of a company’s earnings that are paid out as a reward to shareholders.”
DHS, which turns 16 years old in June, is a relevant consideration for investors seeking above-average, dependable equity income. The fund follows the WisdomTree U.S. Dividend Index. That gauge is dividend-weighted to give investors a potentially accurate view of what member firms’ dividends will be in the year ahead.
The CNBC survey also reveals that the polled asset allocators are bullish on financial services and technology stocks. Those sectors combine for almost 18% of the DHS portfolio.
“Financials were the second most popular sector among investors. About a quarter of respondents said they would purchases bank stocks. Investors are likely banking on higher rates boosting their bottom lines,” according to CNBC. “Technology stocks, both large and small, made up a big chunk of responses. Twenty one percent of those surveyed said they are likely to purchase mega-cap technology names.”
In addition to the aforementioned dividend overlay, DHS offers investors another benefit: a composite risk score that averages value, quality, and momentum. The quality element is crucial for multiple reasons. First, quality is often a sign of reliable dividend growth. Second, marrying quality with value helps investors avoid value traps. Finally, quality often goes a long way towards reducing volatility. Put it all together, and DHS gained 6.72% in the first quarter, which was the worst quarter for stocks in two years.
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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.