Dividend stocks and ETFs are important sources of income and long-term total returns, facts that are easy to lose track of when markets swoon, but this ETF category remains home to some compelling ideas, including the WisdomTree Total Dividend Fund (NYSEArca: DTD).
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.
“Dividend-weighted strategies like those WisdomTree launched in 2006 can help increase the dividend advantage over Treasury bonds even further,” said the issuer in a recent note. “The dividend yield on our broadest index of dividend payers began March at 3.45%—more than double the interest income on the 30-Year bond.”
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.
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.
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.
Home to nearly 760 stocks, DTD allocates about 31% of its combined weight to tech and financial services stocks. The healthcare and consumer staples sectors combine for almost 26%. The $604.3 million DTD has a distribution yield of 4.88%, according to issuer data.
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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.