2013 has already been a banner year for WisdomTree, as the company has seen incredible asset growth across its lineup, and especially in its now ultra-popular hedged Japan ETF (DXJ). This burst of success has pushed WisdomTree to put several new funds into the registration pipeline, and to debut a handful of new products as well.
The latest addition for the company comes to us in the dividend space, an extremely competitive niche in the ETF sphere where WisdomTree has already seen a great level of success. The new fund could see a decent amount of interest despite the competition though, as it looks to focus on dividend growth.
The new product, the U.S. Dividend Growth Fund (DGRW), looks to hold a basket of stocks that are currently paying dividends and have growth characteristics. This approach is a relatively untapped one, and with a low expense ratio of 28 basis points, we could see some decent inflows in this ETF (read 3 Red Hot Dividend ETFs).
Below, we highlight some of the key details from this new dividend ETF launch for those looking to learn more about this potentially better way to target yield in today’s low rate environment:
DGRW in Focus
This new ETF tracks the WisdomTree U.S. Dividend Growth Index, a benchmark that consists of about 300 companies that have a market cap of at least $2 billion. These 300 are selected based on a combined rank of growth and quality factors in order to give a holistic approach to dividend investing.
In terms of specific factors used, long term earnings growth expectations, three year averages for ROE and ROA, are the biggest drivers of the selection process. Additionally, it is worth noting that the ETF is dividend weighted annually in order to reflect the proportionate share of the aggregate cash dividends each company is projected to pay in the coming year, based on the most recently declared payout (see Retire Early with these 3 Dividend ETFs).
The underlying index is showing a 2.2% yield, so the fund isn’t exactly a high yielder, but it does offer up a competitive payout when compared to other dividend funds. Plus, it is important to remember that the focus is more on companies that have been increasing payouts as opposed to those that have huge distributions already.
This results in a portfolio that is heavy in tech companies, while classic staples and capital goods companies are also well-represented. Current top holdings include AAPL, MSFT, WMT, PG, and KO, suggesting that well-known large cap firms are likely to dominate this holdings list.
“Investors are hungry for income in this low interest rate-, low yield-environment” said Jeremy Schwartz, WisdomTree Director of Research in a press release. “Rather than relying on historical records of dividend increases, DGRW uses real-time growth and quality metrics focused on companies who are growing their dividends.”
How does it fit in a portfolio?
This ETF could be an interesting choice for investors seeking to make a play on companies that are poised to increase dividends over time, as opposed to just focusing on high yielding securities (see 4 Excellent Dividend ETFs for Income and Stability).
Additionally, given the focus on earnings growth, and historical ROA and ROE, it could result in a more growth-oriented dividend portfolio, something that isn’t found in most of the other dividend ETFs on the market.
However, it is important to remember that this product probably won’t be suitable for investors seeking high yields, as the 2.2% payout is unlikely to cut it for truly income-starved investors. Additionally, the portfolio is heavy in widely-held names, so some might find themselves doubling down on large caps if they are already holding them in other funds—or as standalone stocks—in their portfolio.
Unfortunately for this new ETF and for WisdomTree, the dividend growth market does have a few competitors. A few of these funds are quite popular and thus could be tough to beat in this corner of the dividend ETF world.
In particular, two ETFs come to mind; the Vanguard Dividend Appreciation ETF (VIG), and the SPDR S&P Dividend ETF (SDY). Both of these funds focus—in slightly different ways—on dividend aristocrats, or companies that have a solid history of raising dividends year after year (read Time to Buy This Top Ranked Dividend ETF).
These two both have more than $10 billion in AUM and daily volume exceeding one million shares a day on average. So, clearly both could pose as difficult foes for any new competitor in the increasing dividend space of the income ETF world.
Still, it is important to remember that WisdomTree’s new fund is taking a different approach than either of these aforementioned ETFs, as it looks to focus on companies that are likely to raise dividends in the future, as opposed to those who have shown a history of increases in the past.
While this might be a small distinction, the forward looking nature could appeal to some ETF investors and potentially allow this product to accumulate a decent level of interest among dividend ETF buyers as well.
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