Challenges are plentiful this year when it comes to dividend equities, but there are avenues to enhance client outcomes with payout stocks.
Consider the Global Dividend Model Portfolio, which is part of WisdomTree’s Modern Alpha series 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.
Data confirm the first half of 2020 was rough for dividend investors.
“In the first half of this year, companies in the S&P 500 index cut dividends by more than $40 billion, and over the past 12 months, the so-called S&P 500 dividend aristocrats—65 companies in the index that have raised payouts for 25 consecutive years—returned 2.8% compared to 13% for the index,” reports Karen Hube for Barron’s.
Modeling for Reliability
The quality emphasis in the portfolio is important in the current market climate.
“Many financial advisors are recommending a tactical shift into more dividend-paying stocks while paring back exposure to large U.S. growth stocks and traditional bonds,” according to Barron’s.
Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock-full of stocks that have the potential to be future sources of dividend growth.
“Stock dividends not only can damp the volatility of a portfolio’s total return, they can be a proxy for traditional bond yields at a time when fixed-income yields are so miniscule, says Wes Moss, Chief Investment Strategist and Partner at Capital Investment Advisors in Atlanta,” according to Barron’s.
The WisdomTree model portfolio’s high-quality focus may also help dividend growers outperform or do less poorly than the broader markets during weaker periods.
Dividends have added significantly to returns over time, contributing approximately 32% of the S&P 500’s total return since 1960. During the return-challenged 1970s, dividends made up nearly three-quarters of S&P 500 returns – while investors earned a cumulative total return of 77% from the S&P 500 in that decade, 60% of that 77% was from dividends.
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.