These days, it’s becoming harder to identify dependable dividends, but the WisdomTree Total Dividend Fund (NYSEArca: DTD) is one ETF that does just that.
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.
To this point in 2020, none of the 10 largest components in DTD have cut dividends while several have been payout raisers.
“Expectations for historic dividend cuts have led the dividend-growth index to outperform the high-dividend index so far this year,” said WisdomTree in a recent note. “Investors have wagered that the forced shutdown of the economy will cause the highest dividend yielders—typically sought after for their safety during drawdowns—to severely cut their dividends.”
Stocks with steady yields reassure investors of a company’s strong financial health. 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.
DTD pays a monthly dividend, is a bet on future sources of dividend growth as highlighted by its robust exposure to the financial services and technology sectors. Not only are those of the largest sources of S&P 500 dividend growth over the past several years, but those sectors also provide a buffer for DTD in the event that interest rates rise.
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.
DTD also does an admirable job of avoiding dividend offenders, which is a vital strategy in today’s rough dividend market.
“Investors should expect further dividend cuts to come over the coming weeks and quarters. The greatest cuts are likely to come from the companies with the highest yields, with fewer cuts from dividend growers,” according to WisdomTree.
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.