Government bond yields are still anemic throughout much of the developed world, highlighting the utility of dividend stocks and exchange traded funds in income investors’ portfolios. One idea to consider is the WisdomTree U.S. Quality Dividend Growth Fund (NASDAQ:DGRW).
Despite expectations for a tighter monetary policy out of the Federal Reserve and rising interest rate outlook, fixed-income yields remain stubbornly low. Consequently, income-starved investors may turn back to high-yield dividend exchange traded funds to generate a little extra cash.
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.
“Return on equity is a very useful way to measure a company’s profitability. But ROE can be increased through excessive borrowing,” according to a Seeking Alpha analysis of the ETF. “In order to control this, DGRW also uses return on assets in its quality rankings, which would tend to penalize companies that use too much leverage. That way, the fund tends to own less risky stocks which have more consistent dividend-paying ability.”
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