Dividends have been one of the hottest investing themes in town over the last several weeks, going back to the Fed’s regular, and aggressive, rate hikes in the fall. Dividend ETFs added hundreds of billions in net inflows through the end of 2022, but with a possible earnings-driven recession looming, investors may be wondering which strategy is the right dividend ETF for 2023. One strategy that could fit the bill may be the WisdomTree US High Dividend Fund (DHS) and its tilt toward safer, larger cap value firms.
Dividends’ ability to provide current income for investors had already been an appealing attribute given the Fed’s rate hikes, and that uncertainty remains as Fed watchers are still uncertain as to when the central bank will stop its hikes. Not only is the timing of the Fed’s final hike of this period relevant, but so is the question of how long the central bank plans to maintain higher rates.
With both factors relevant to investors, having current income to back up their portfolios can be a big help – even despite a recession. While analysts are still debating whether a recession is coming in the first or second half of 2023, many expect that big hits to earnings will create a recession, most likely a smaller one.
Even a small recession may concern investors interested in dividends, but those same investors may want to go back to past recessions and look to how dividends performed for some comfort. In past recessions, stock prices have proven much more volatile than dividend payouts given that larger, more mature firms tend to be the most consistent dividend payers.
That bodes well for a dividend ETF like DHS that expresses a value-oriented, large-cap view via its WisdomTree U.S. High Dividend Index. The strategy, which charges 38 basis points, has outperformed its Factset Segment Average over the last three months, returning 13.2% in that time. It’s added $56 million in net inflows over the last month, while also offering investors a 3.8% annual dividend yield.
Investors have several interesting options looking for the right dividend ETF for 2023. In an environment like this, that is a big help – especially with a strategy like DHS available, and one to watch in the weeks ahead as markets await the next big move from the Fed.
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