Not all dividend stocks are value plays and not all value stocks are dividend payers, but there are often intersections between the two concepts, meaning the recent value rebound is good news for dividend investors.
Advisors can position client portfolios for payout-based value rebound with WisdomTree’s Global Dividend Model Portfolio.
“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.
The model portfolio is meaningful at a time when value stocks are finally looking strong.
“Dividend-paying stocks tend to cluster toward the value side of the equity market,” says Morningstar analyst Dan Lefkovitz. “Companies in slower-growing sectors like consumer defensive, utilities, energy, and financial services, are likelier to pay out cash to shareholders than in faster-growing areas such as technology.”
Right Model Portfolio Idea for 2021
As income-minded investors look for ways to bolster returns in a low rate environment, various exchange traded funds can rise to the challenge.
Exposure to the value factor could be in play following rotation away from high growth that has outperformed this year to cheaper cyclical sectors. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales).
While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain-priced compared with their competitors. Value fans believe this time may be different for value stocks, pointing to improving investment sentiment measures, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it’s been in decades.
Over the near-term, strength in cyclical sectors would likely hasten the dividend/value rebound. Fortunately, the long-term dividend equity outlook remains compelling.
“Meanwhile, the long-term case for dividend payers remains strong,” according to Lefkovitz. “Not only does a significant portion of the long-term total return from equities come from reinvested dividends and dividend growth, but dividend payers have posted a strong track record relative to non-payers and the overall market. Dividend payers tend to be solid, cash-generative businesses. Committing to a regular payout instills discipline.”
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.