With the first quarter in the books, it’s fair to say the S&P 500 dividend action to start 2020 is concerning at best. Due to a spate of cuts in the energy sector and Boeing’s (NYSE: BA) suspension, among other ominous acts, S&P 500 dividend growth is likely to slow this year or even decline.
Against this trying backdrop, investors should be getting selective with dividends, something that can be accomplished with the WisdomTree U.S. Quality Dividend Growth Fund (NasdaqGM: DGRW).
DGRW seeks to track the price and yield performance of the WisdomTree U.S. Quality Dividend Growth Index. The index is a fundamentally weighted index that consists of dividend-paying U.S. common stocks with growth characteristics.
In the current environment, investors should be emphasizing companies or ETFs that focus on quality yield. High-yielding assets could come with high-risk, so for investors who don’t have a cast-iron stomach for risk, then quality is a must–especially investing in companies with a solid track record of dividends.
For its part, DGRW eschews high-yielding names that could be strained by their payouts. Rather, the fund emphasizes quality names with the balance sheets to endure rough times and even grow dividends in challenging environments.
Depending on DGRW
“After years of annual records, there’s a good chance S&P 500 dividend growth will contract this year or only be negligibly higher, cementing the allure of DGRW’s dependability,” according to Nasdaq. “If S&P 500 dividends do decline this year, that would be somewhat remarkable because it would mark just the seventh time in the last 63 years that has happened with 2009 being the most recent occurrence.”
With traditional dividend-paying stock strategies, investors may be exposed to unintended risks. For instance, high dividend-yielding companies may be exposed to some perceived risk with an equity investment in that company. For consistent dividend payers or dividend growers, investors are relying on historical patterns to repeat themselves in the future, and as we all know, past performance is no guarantee of future results.
“Due to the spate of hotel, mall and store closures across the U.S. due to the COVID-19 outbreak, real estate investment trusts (REITs), another high-yield group, could also see negative payout action,” notes Nasdaq.
The good news is that DGRW features hardly any exposure to the energy and real estate sectors, which are high yields and possibly home to more negative dividend action as 2020 moves along. Rather, DGRW allocates more of its weight to tech and healthcare, among other groups, which have more positive dividend profiles.
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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.