Some dividend exchange traded funds select stocks based on how long those companies have increased payouts while others weight components by dividend yield. The WisdomTree U.S. Quality Dividend Growth Fund (NASDAQ: DGRW) takes a different approach.

DGRW includes companies with high long-term earnings-growth forecasts for the next three to five years and weights components based on the value of dividends they are expected to pay over the next year. The ETF tracks the WisdomTree U.S. Dividend Growth Index (WTDGI), which evaluates companies based on earnings quality, return on assets and return on equity.

DGRW “ranks its components according to three factors: long-term earnings growth, historical three-year average return on equity and historical three-year average return on assets. It will pull out the top 300 names using this methodology and then weight them according to the total amount of cash dividends paid, not dividend yield. What you’re left with is a portfolio that tilts towards large-cap dividend payers and includes companies that operate efficiently and generate a lot of cash,” according to ETF Daily News.

DGRW could be ideally positioned to endure higher interest rates, should the Federal Reserve opt to resume that trend later this year. While a rise in rates would diminish the attractiveness of dividend stocks with premium valuations and low growth, more high quality dividend payers or the group of dividend growers may stand out.

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