Why you should ditch dividend payers like utilities and telecom
Investors are renewing their focus on the timing of an interest rate hike as the Federal Reserve begins its two-day meeting today. However, dividend investors should already be rotating their portfolio into sectors poised to perform in an improving economy. “The dividend growth part of the market, it's more technology companies, consumer discretionary companies, industrials,” advises Jeremy Schwartz, director of research, at WisdomTree. “You don’t have any utilities, telecom or REITs.” he adds.
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According to MarketWatch, the Federal Reserve is widely expected to remove its pledge to be “patient” in raising short-term interest rates on Wednesday, giving policy makers the flexibility to move as soon as June. Historically, utilities, telecom and REITs offer investors higher yields when interest rates are low.
To best identify the best dividend growing stocks for WisdomTree’s U.S. Dividend Growth ETF (DGRW), Schwartz uses a model that focuses on “return on equity, return on assets and earnings growth expectations.” 40% of the fund is divided evenly between consumer discretionary and technology companies. “You get companies like Apple (AAPL), Microsoft (MSFT) a lot of the tech companies,” which in his opinion is more of a forward looking.
To Schwartz’s point, the SPDR S&P Dividend ETF (SDY), which tracks companies that have consistently boosted dividends every year, for at least 20 years, according to State Street Global Advisors (STT), says information technology accounts for just 2.8% of the fund. “The aristocrats has a 20-year look back, it will be 20-something before they ever include Apple,” observes Schwartz. With a market cap of nearly $800 billion Apple is the world’s biggest company and pays a quarterly cash dividend of $0.47 per share. Many expect those payouts to keep rising.
NOTE: The FOMC will conclude its two-day meeting on March 18 around 2pm ET, followed by a live press conference at 2:30 which can be viewed here: http://www.ustream.tv/federalreserve.
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